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Here’s what to expect ahead of tomorrow’s highly anticipated inflation reading

WE consumers and businesses not always see eye to eye. But when it comes to inflation, all Americans seem to agree that sky-high prices are the biggest problem facing the country right now.

After more than one decade of low inflation After the Great Financial Crisis of 2008, the global economy suffered a wave of inflationary pressures as the COVID-19 pandemic began in 2020.

The good news is that inflation has fallen from the highest level in four decades.

The most popular measure of price increases in the US economy, the consumer price index (CPI), has increased 8.5% year over year year in julycooling from a Up 9.1% in June which is the largest since 1981.

And with the August CPI report due on Tuesday, investment banks and asset managers say they expect consumer prices to continue to cool. However, they also cautioned that a return to the Federal Reserve’s 2% inflation target could be a challenge due to underlying price increases and wage increases.

“Even with inflation peaking, consumer prices remain high and will likely continue to rise in the coming months,” said Russell Evans, managing director at Avitas Wealth Management. Luck.

Here’s what the experts think to expect from the August CPI reading.

Morgan Stanley

Morgan Stanley The economists, led by Julian M. Richers, said in a research note on Wednesday that they expect Tuesday’s CPI reading to show inflation in August fell by 0.23 % month-on-month, pushing the annual inflation measure to 7.9%.

The rich argue much of the drop will be due to an estimated 6.4% monthly drop in energy prices. U.S. energy prices fell at the end of the month as gasoline prices fell more than 25% since mid-June, according to American Automobile Association. The drop comes amid a drop in oil demand due to a slowing global economy and rising recession fears as well as rising output. Oil prices, as measured by West Texas Intermediate futures, traded below $88 a barrel on Monday, down more than 27% from June’s high.

However, Richers added that he expected core inflation, which excludes volatile food and energy prices, to rise to 6.1% in August as “rent inflation is likely to continue. continued to grow strongly for a while.”

Bank of America

Michael Gapen, chief economist at Bank of America, said in a research note on Thursday that he also expects inflation to fall for the first time since May 2020 in August.

However, Gapen believes energy prices fell only 5.2% last month (Morgan Stanley said 6.4%), while food prices fell 0.9%, compared with a 1.1% decline a month before.

The more limited outlook for falling food and energy prices means headlines, the annual CPI will drop to just 8.2%, in Gapen’s view, according to Gapen.

“Wage increases will continue to put upward pressure on food prices due to household inflation, and although commodity prices have fallen recently, this will take a long time to translate into consumer prices,” Gapen writes.

The economist added that he expected core CPI to rise 0.3% in August to 6% year-on-year. “Falling used car prices are easing some of the core price pressures, but rising rent inflation will keep this number above the Fed’s target for some time,” he said. .

Gapen also noted that a further significant rise in rents would be a significant concern for the Federal Reserve, which has been trying to quell inflation with interest rate hikes throughout the year.

UBS

UBS US chief economist, Jonathan Pingle, also said in a research note on Friday that headline inflation “looks like it will fall further in the August data to be released next week.”

He forecast that CPI will decrease by 0.03% in August and 8.1% year-on-year in the context of “lowering gasoline prices”.

And like everyone else, Pingle thinks core inflation still rose last month. He predicts core CPI to increase 0.43% in August and 6.2% from a year ago due to increases in rents, hotel rooms and medical services.

However, by the end of the first quarter of 2023, UBS thinks inflation will return to near the Fed’s 2% target.

“We expect the monthly inflation rate to slow significantly for the rest of the year, with [economic] Pingle wrote.

Goldman Sachs

Goldman Sachs chief economist Jan Hatzius said in a note Sunday that he believes inflation fell 0.13 percent month-on-month in August, sending consumer prices up 8.1 percent year-on-year. same period last year.

He argues that the prices of airfares, cars and oil are falling amid “loosening of supply chain constraints”, which should help reduce inflation. However, like its peers, Hatzius believes core CPI will increase in August, marking a 6.1% year-on-year increase.

“We expect service inflation to continue to strengthen due to wage pressure, labor shortage and high short-term inflation expectations. Specifically, we look for a strong set of shelter readings and a 0.6% increase in education prices due to higher tuition and childcare costs for the new school year,” he wrote.

Asset and investment managers

Asset managers also expect inflation to ease last month, and like their investment banking peers, they also expect the Fed to continue to raise interest rates this year to try to keep pepper prices under control. use.

Russell Evans, a managing principal at Avitas Wealth Management, told Luck that he believes inflation has peaked, driven by recent drops in gas, travel and accommodation prices and weaker-than-expected manufacturing data. But he is also concerned about the Fed being able to bring inflation back to their target levels and argues that a 75 basis point rate hike in September is needed to get the job done.

“Even with inflation peaking, consumer prices remain high and are likely to continue to rise in the coming months, which should prompt further action by the Fed,” he said.

Bob Doll, chief investment officer at Crossmark Global Investments, says Luck that although key inflation is falling, core inflation remains a “problem” for the central bank.

Doll notes that the labor market remains hot, with the US economy 315,000 more jobs last month, even as the Fed raised rates four times so far this year.

In his opinion, this means that central bank officials are far from tightening their monetary policy. However, he thinks the “delayed impact” of the Fed’s anti-inflation policies will become “more and more obvious” in the coming months, leading to lower inflation.

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