[ad_1]
Tuesday’s CPI inflation figures caused a stir. The index has jumped 5.4% in the past year, beating expectations by 4.9%. Core inflation (which excludes the volatile gas and food categories) increased 4.5% year-on-year. Both were up 0.9% from last month, the biggest jump since 2008.
Here’s what analysts had to say about the report and what it means for the future.
Good news and bad news
A big question surrounding inflation recently is whether it is transient or more likely to become more sustained. (“An episode of one-time price increases as the economy reopens is unlikely to result in persistent year-over-year inflation in the future,” Federal Reserve Chairman Jerome said. Powell, in April.)
The Bank of America economics team pointed out that its “meter” recently showed historic temporary inflation.
“The bad news is that we are still not out of the woods, as the core CPI and the core PCE inflation percentage year-on-year are expected to remain high through the end of the year and into the beginning. 2022, “the bank’s Alexander Lin wrote in a statement. note to customers. “The good news is that we are probably near the peak, at least for the next few months, as base effects are less favorable and scarcity pressures shift from goods to services.”
Furthermore, Lin continued, “there is even a risk that transitory inflation will turn into transitory disinflation.” If that happens, it could change the Fed’s stance.
Supply and demand shocks are unlike anything in recent memory, with the pandemic leading to shortages and demand shocks, and then reopening causing a surge in demand. The pendulum could swing in the other direction.
“A big question for commodity and commodity inflation once the shortages and bottlenecks abate is whether there will be a price cap or a negative return on investment,” wrote Linen. “So the transitory disinflation could be substantial next year. This could create a new challenge for the Fed’s communication and timing of the hike. “
Wider than usual
Expectations for inflation numbers have focused on energy costs, which has a disproportionate impact on the CPI.
In an overview note, Nicholas Colas of DataTrek pointed out that gasoline price inflation played a significant role, accounting for 40% of June headline inflation (total, unadjusted for gasoline and gasoline). food).
Gas played a big role in inflation, but as Peter Essele, head of investment management for Commonwealth Financial Network, wrote, inflation has been felt in many areas.
“It appears that the increase in June was more general in nature with spillover effects on the core components of the CPI, particularly the services component. Shelter, for example, which accounts for about a third of the overall CPI, is slowly rising upwards, with the June print indicating a 2.6% year-over-year increase, ”he said. written. “Prices for used cars and trucks have increased 45% in the past year, signaling the biggest movement on record. “
Still no answers as to what’s permanent
Analysts were surprised by higher than expected total and core CPI measures. But the numbers haven’t done much to clarify the bigger question: How permanent is all of this?
In a note to clients, analysts at TD Securities said they believe inflation in travel and used vehicles means inflation is “largely” transient. The big problem he saw was the re-acceleration in rents after a slowdown last year, which would indicate something more permanent.
“As we illustrated once again in our latest US CPI scanner, some private sector data tracking rents show a much larger strengthening than the CPI data in recent months, but the same data has shown a much larger weakening in 2020, “the analysts wrote.
However, which is frustrating for those who want more certainty, it could still be transient.
“Part of the rent increase could also be transitory as the momentum for reopening is currently at its peak,” the note said.
[Read more: 3 types of inflation to worry about]
What this means for the Federal Reserve
One of the key jobs of the Federal Reserve is to control inflation, so of course the data begs the question: what will the Fed do? Will he maintain his easy money policies designed to stimulate the economy during the pandemic?
Lin of Bank of America said the bank “doesn’t think this report changes much for the Fed.” The reason, echoed by analysts at TD Securities, is that these price increases appear to be largely transient, at least with the data currently available to us. don’t want to get worse.
Yet the latest data makes it more difficult to continue this “wait and see,” wrote ING’s James Knightley.
“Yet another explosive inflation reading makes it increasingly difficult for the Fed to stick to its position that high inflation readings are just ‘transient’,” Knightley wrote. Costs of goods go up and businesses want someone else to pay – the customer – especially when demand is so high.
“The case for a rate hike in 2022 is strong,” he added.
–
Ethan Wolff Mann is a writer at Yahoo Finance who focuses on consumer issues, personal finance, retail, airlines, and more. Follow him on twitter @ewolffmann.
Read more:
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, Youtube, and reddit
[ad_2]
Source link