Inflation In The USA Has A Chance Of Cooler

Inflation is at the top of the world worry list in 2022. The situation in the United States proves that inflation is a global problem. Although the local market is in better shape than, for example, the European one, the level of inflation in the US has not been so high for over 40 years.

Undoubtedly, the most anticipated macroeconomic data in the world will be those on the behavior of the CPI and the "base" (core) version of this indicator that does not take into account energy and food prices in the USA.

Previous reading

Data provided by the Bureau of Labor Statistics (BLS)show that inflation in the country is now 8.2% according to the latest publication.

The CPI data were perhaps not that bad, although economists expected a drop to 8.1%. but it was the third consecutive month of decline in this indicator.

Core inflation (CPI) in September 2022 was 6.6%. y/y versus 6.3% in August and forecasts at 6.5 percent. Month-on-month was 0.6%, against the forecast of 0.5%.

Expectations

Inflation data, especially on core inflation, are to be of key importance when it comes to the next decisions of the US central bank concerning interest rate hikes.

CPI data are scheduled to be released on November 10, 2022.

Inflation is expected to reach 8.0% y/y against the previous reading of 8.2%. This may mean that the Fed's actions are paying off. The monthly CPI change is forecast to be 0.7%.

However, if it turned out to be higher, the market could take it very badly. It would be a strong argument for the Fed to continue to aggressively tighten monetary policy.

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Source: investing.com

Core inflation also expects a decline of 0.1% from 6.6% to 6.5%. This inflation is of particular importance as it does not take into account price changes excluding food and energy, which are the main factors influencing the overall CPI.

Fed's fight with inflation and its price

For the past year and a half, consumer inflation in the world's largest economy has been spinning out of the control of central bankers. The Fed is trying at all costs to bring inflation back to a stable 2% level.

The Fed started a cycle of interest rate hikes in March, raising the cost of money by 25 bp to 0.25-0.5%. In April, FOMC members decided to move by 50 bp. up. At subsequent meetings it is already by 75bp. With today's rate increase, the benchmark federal funds rate is a range of 3.75% to 4%. Rates are expected to peak at 4.5% to 4.75% in 2023, according to the U.S. central bank's own projections.

In simple terms, the Fed's approach can be described as an attempt to destroy demand while encouraging businesses and individuals to save.

At every opportunity, business owners will cut back on their expenses, which can result in the employment rate stagnating, leaving workers' wages unchanged and discouraging them from spending more.

Inflation in the USA is a major problem for the markets

The more the American central bank tightens its monetary policy in 2022, the more the dollar strengthens, and this is painfully felt by other currencies in the world, e.g. the euro (EUR), the Japanese yen (JPY) or the British pound (GBP).

The rate hikes cycle in the US turned out to be a difficult period for assets. The main indices of American stock exchanges, as well as markets practically all over the world, have been recording drastic drops since the end of 2021. In the bond market, for the first time in 40 years, we have a bearish market, and cryptocurrency rates were losing by 50 to 90 percent in the first half of 2022. your worth.

On the other hand, assets like gold have gained significant importance as a hedge against inflation. Cryptocurrency has also proved to be an ideal option compared to gold as an investment against severe inflation.

Source: investing.com, www.federalreserve.gov/data.htm, www.bls.gov/cpi/