Inflation is not letting up in the US. The CPI stood at 8.6% in the month of May (three tenths more than the previous month and highest levels since December 1981 ), far exceeding expectations and hitting a new high in this inflationary era that began in mid-2021. On the other hand, the monthly rate has risen to 1%, three tenths more than expected. Inflation is out of control and the monthly rate is the best proof of it.
Inflation did not peak in March as expected, prices have once again reached a new maximum not seen since December 1981 (more than 40 years). Core inflation has been set at 6% year-on-year and 0.6% monthly.
“High inflation seems to have taken root. On the one hand, it has clearly reached services. Experience shows that inflation is stickier there. So once it gets going, it can’t be brought down quickly.” , they assure from Commerzbank in a quick comment.
“Secondly, goods prices are also now picking up speed, having corrected in recent months. These further increases in goods prices may partly reflect higher transportation and production costs due to rising commodity prices. energy”, state the economists of the German bank.
Second-hand cars are on the rise again
In monthly terms, used cars and trucks have risen again against all odds. So have first-hand vehicles, whose price has increased by 1% per month. Chip and component shortages continue to weigh on production, while demand shows no signs of easing. Food has risen 10% in annual terms (1.2% monthly) and home delivery more than 11% (1.4% monthly). For example, cookies, cereals or flour are rising at a rate that exceeds 12% per year. However, the food prize goes to the eggs with a rise of 32%.
All the components weighted by the Bureau of Labor Statistics have presented positive monthly rates. What this shows is that inflation, far from having peaked, is still very much alive. Analysts and experts announced that the IPC had reached its highest point in March, when it stood at 8.5%. But the reality has been very different. Energy prices are fueling a second round of inflation that is being fueled by the war in Ukraine and supply problems with oil and gas.
The core CPI for April already surprised to the upside with a rise of 0.6% month-on-month, but the year-on-year rate was still below the peak reached in March. There were also signs that inflationary pressures are shifting from goods to services, albeit partly reflecting a post-pandemic normalization in tourism service prices. The Fed’s key measure, core PCE , which is less affected by rising rents, continued to rise 0.3%m/m, down from the 0.4-0.5%m/m pace seen between October and January. These data seemed reassuring, but the CPI published this Friday ends suddenly with that ‘tense calm’.
Central banking accelerates
Inflation continues to show historically high growth rates that are lasting much longer than any central banker had anticipated. Both the ECB, the Fed and the BoE, with some nervousness, are accelerating to try to stop the rise in prices without causing an earthquake in the economy and in the markets, a complex mission that is becoming more and more complex. It seems inevitable that the economy or the markets will not end up paying for the delay of the central bank in acting.
The Federal Reserve seems willing to keep its roadmap unchanged. “The Fed plans to raise rates by 50 basis points in both June and July. We also expect Chairman Jerome Powell to keep the door open for another 50 basis points in September. Based on his remarks and the May FOMC minutes, the The Fed intends to quickly raise rates to a more neutral rate, a range the Fed typically defines as 2.00-3.00
This supports our forecast for another 50 basis points in September, which would return the rate to 2 .50%”, explains Elisabet Kopelman, an economist at SEB bank.
What will happen to inflation?
Among the most prominent economists, there is some illustrious name that is not so clear about the relaxation of inflation. This is the case of Mohamed El-Erian, chief economic adviser at Allianz and former Pimco.
The strategist agreed in advance with the consensus monthly estimates for this Friday’s CPI, but issued this warning on Bloomberg Television : “What worries me is that the June month-on-month reading will be worse than May. Those who dared to say that inflation has peaked and is coming down may have to change their minds. El-Erian’s worst omens have come true: monthly inflation has been relentless in May.
“I would not be surprised to see a figure above 8.5% in the general CPI,” El-Erian predicted. “The engines of inflation are widening. Across the board, energy prices are rising dramatically month-on-month. We see pressures on housing and food. It’s too early to say that inflation has peaked,” riveted
A recent study casts little optimism. One commanded by former Treasury Secretary Lawrence Summers finds that current US inflation is closer than previously thought to its peak in the early 1980s. Recalculating historical CPI readings, they concluded that Paul Volcker’s aggressive policies since the The Fed reduced core inflation by five points and not by 11, as was recorded. The study’s economists see this strip as similar to the one the Fed now has to cut, highlighting that Volcker’s move implied a deep recession.