Inflation is expected to slow in August. Don’t breathe a sigh of relief However, experts say.
Economists are predicting the consumer price index – a key inflation indicator – to have fallen by 0.05% in August, bringing annual inflation to 8.1% from 8.5% the previous month, according to FactSet.
Citi economist Andrew Hollenhorst writes: “A drop in gas prices will cause negative or negative inflation.
Gasoline has been one of the main drivers of inflation this year, as energy and oil prices skyrocketed in response to the war in Ukraine. Other factors, including falling used car prices and a slowing housing market, will also help keep inflation down, Hollenhorst added.
On the surface, that’s a good thing for markets, which have been anxiously awaiting a clearer sign that inflation is easing from a four-decade high. July’s lower index offered some hope and even sent the market up after the report. A better-than-expected reading can also have a positive effect on the market.
“Despite a trendless month, we do find the July CPI report contains early evidence that the pandemic shock to relative commodity prices may be in the early stages of a recession. reversal”.
Bank of America
But all the signs point towards Read in August is a double-edged sword.
First, a market rally can do more harm than good, said Phillip Toews, CEO of Toews Asset Management. Toews believes that instead of seeing inflation steadily fall over the next few months, the economy will see waves of inflation. In that case, a strong positive move in financial markets would be “the worst thing for the Fed,” he said.
“If we see some positive numbers on inflation now driving the economy higher, we could see a negative impact on inflation later on,” Toews said.
“Honestly, what we need to see are things that take a toll on equities and financial assets in order to be successful,” he added.
Another worrisome sign is that while key inflation is expected to decline, core inflation, which excludes volatile food and energy categories, is forecast to pick up. Core inflation tends to provide a more accurate reading of longer-term underlying inflation trends, making it an important metric for the Federal Reserve to evaluate as it proceeds. monetary policy setting. Economists expect the core CPI to rise to an annualized rate of 6.1%, up from 5.9% in July.
“The signal is that inflation is still quite broad and well above target, and so the Fed will have to continue with its positive stance,” said Megan Greene, chief global economist at the Kroll Institute.
That’s not necessarily a surprise. Over the past few days, several Fed officials, including Chairman Jerome Powell, have seek to emphasize commitment of the central bank to maintain a positive stance on monetary policy until inflation is brought under control.
“History strongly warns against easing policy too soon,” Powell said Thursday, during a moderated discussion at the Cato Institute. “I can assure you that my colleagues and I are strongly committed to this project and we will continue to do so until the work is completed.”
As of Friday afternoon, investors had priced in a 90% chance the Fed would announce a 75 basis point increase at its meeting later this month.
Write to Sabrina Escobar at firstname.lastname@example.org