Inflation in the US decreased on an annual basis to 7.7%, compared to 8.2% last month. The positive figure may affect the Fed’s next interest rate decision | The stock market showed record increases that have only been seen a few times in history, does the market believe that the peak is behind us?
The American price index was published today (Thursday) and shows a slowdown in inflation, which last month stood at 7.7% in the annual index, after the expectation for it was 8.0%, and in September stood at 8.2%. Inflation shows a continuous trend of deceleration, after reaching a peak of 9.1% last June, and since then has shown a moderate decrease. This is the lowest annual rate since January.
The market expected higher inflation, with a monthly increase of 0.6% and an annual increase of 8%. This after in September the annual rate of increase was 8.2%.
This is the lowest level of inflation since January of this year, against the background of the sharp interest rate hikes carried out by the American Central Bank since March to curb rising inflation.
The core index, which neutralizes prices that are considered volatile such as food and energy prices, climbed by 0.3% on a monthly basis. On an annual basis, the core index rose by 6.3%, and fell from a 40-year high recorded the previous month when it reached an annual jump of 6.6%.
The publication of the data drops the dollar in the local foreign exchange market and jumps the futures contracts on the leading indexes in New York to levels of 2.4%-4%, after earlier they were running with moderate increases.
In accordance with the positive data, Wall Street closed with sharp gains: Nasdaq jumped by 7.4%, S&P 500 by 5.5% and Dow Jones by 3.7%. At the same time, the dollar weakened by 2.4% against the shekel and traded around NIS 3.4784.
Senior officials of the Federal Reserve, the central bank of the USA, regard the inflation data as a significant consideration in determining their monetary policy. Market estimates are that the Fed will raise interest rates by 0.5% next month, after four consecutive increases of 0.75%.
Many economists believe that interest rate hikes should be stopped, which they say harm the economy as a whole. Dean Baker, the economist who became famous as one of the few who predicted the 2008 crisis, and who founded the Research Institute for Economic and Policy Research, claimed that in view of the labor market data, the Federal Reserve should stop raising interest rates.
According to Baker, the wage increases, which are less than 4% on an annual level, are similar to the level in the years when inflation was recorded at low rates and therefore the Federal Reserve should stop raising interest rates.
It is important to remember that interest rate increases are intended to fight inflation, but they exact heavy costs from the economy as a whole by raising the price of credit and consequently lowering the level of demand. The International Monetary Fund has already identified significant slowing trends in the global economy that have caused and will cause the loss of livelihood for millions of people.