The consumer price index for the month of July in the United States will be published today (Wednesday) at 15:30 Israel time, and the markets expect to see that inflation has decreased from 9.1% in June to 8.7%. This is still a historically high figure, but it seems that the trend is moving in the right direction. But not everyone agrees.
■ The British test case: six interest rate hikes did not help moderate inflation Surgery
■ The forecast of the investment house Blackrock: “The optimism is misplaced”
■ The bill to lower inflation passed in the Senate. What is hidden inside it?
■ USA: The employment report leaves the Fed’s interest rate hike policy on the aggressive path
“It seems that the markets now expect that the contraction of the economy in recent quarters will cause inflation rates to drop,” wrote analysts from Blackrock Investments this week. “We don’t think such a ‘soft landing’ is expected in a volatile macro policy, shaped by production constraints. Central banks will have to drag the economy into a deep recession if they really want to curb today’s inflation – or live with higher inflation. We think they will adopt the second option in the end, but they are still not ready to change direction.”
There is one more factor to consider. The core index of consumer prices, which does not include the volatile costs of food and energy, is actually expected to climb. In June, the index reached an annual rate of 5.9%, and the consensus estimates of Wall Street analysts are that it will reach 6.1% in July. Blackrock predicts that the core index will be even higher, 6.2%, and a pair of Goldman Sachs analysts also warn that the inflation picture in the US in the near term “will probably remain uncomfortably high”.
An increase in the core CPI would be significant, as the core rate is a reflection of the true underlying trend of inflation. At the same time, an increase in this rate may shatter the hopes spread in the financial markets in the last month – that price increases have reached a peak.
The markets have shown optimism in recent weeks
Signs of financial market expectations that inflation is likely to ease are abundant: the US stock market rose from its lows in mid-June, despite the declines of the past few days. At the same time, US medium- and long-term bond yields fell from their June highs.
Another thing to consider is the currency market that works around the clock, where the dollar remains sensitive to data surprises in the US. “The market needs to decide if a headline about a slowdown is more important than a sticky and strong core,” TD Securities strategists said, as published in Market Watch.
Economists say it is important for the Federal Reserve to anticipate data that confirms that inflation is decreasing. But at the same time, this is only one report, and the Fed will also have to take into account the next employment report that will be published this month and the consumer price index for August, before it raises interest rates again in September.