| Guy Beit-Or, Chief Economist of Psagot |
We are in the days when the markets are content with the fact that inflation did not surprise significantly upwards, so that they will continue their year-end rally.
However, it is important to understand what this is all about. Although the index in the United States has risen in line with expectations, the forecast was particularly high with an increase of 0.8 NA in the general index and 0.5%.
Overall, the annual rate rose from 6.2% to 6.8% and the core inflation rate rose from 4.6% to 4.9%. This is the fastest rate of inflation since 1982. Looking at it from above, total product items have risen by 11.1% in the last year and products without food, energy and used vehicles have risen by 5.9% so as you can see, US price increases are extensive and comprehensive no matter which Section We examine this.
A look at some of the items shows us the orders of magnitude – the food item has risen by 6.4% in the last year, large household products have risen 5.5% new vehicles have risen by 11.1% and used car prices have completed an increase of 31.4% in the last year. Clothing and footwear prices rose 5.0% and transportation services completed a 3.9% increase. Finally, the housing section completed a 3.8% increase, the fastest pace since 2007 when leading indicators signal that it is further expected to accelerate over the coming months.
Looking ahead, inflation trends are likely to become particularly interesting when, on the one hand, general inflation is likely to begin to decline in light of the recent decline in oil prices, but on the other hand core inflation is expected to accelerate as pressure and boiling real estate market continue to seep into the basic and not-so-transit inflation environment .
To all this, we must add the usual reservation that the risks continue to be tilted upwards as the disruptions in the global supply chains continue and their infiltration into the price environment is accompanied by high uncertainty but it is clear that it will continue.
| How are inflation and labor market data expected to affect the Fed’s decision on Wednesday?
As Powell said, it is time to retire the word “transitory” from inflation and rightly so. The November index strengthens estimates that on Wednesday the Fed will announce an acceleration and even a doubling of the pace that is likely to end as early as March.
Beyond the high inflation, the latest data from the labor market indicate that it is very tight when after the employment report, last week we were informed that the US has jumped beyond expectations so that the gap between the number of unemployed and vacancies continues to skyrocket. , Cyclical inflationary pressures are expected to continue to intensify in a way that will force the Fed to start raising interest rates as early as the first half of 2022.
However, note the recent reaction of the bond markets when while we are seeing a rise in yields in the short parts, the long parts are stable and even declining. It will probably end early when the bond market is already smelling the economic slowdown.
It is important to emphasize that over the past three years, the stock markets have enjoyed a particularly strong windfall from central banks and have been able to yield significantly higher-than-average returns. In 2022, the central bank will not be there so the challenge in the markets is going to be big. Another point in this regard – since 2008 the central bank has accustomed investors to its actions that it will always be there to “save the situation”. Veterans in the capital market will be remembered by definition the Bernanke put (originally the Greenspan put After the collapse in 1987) that simply describes a situation where there are always problems in the economy, the Fed will come up with another reduction in interest rates and / or quantitative easing.
Simply put – more liquidity. Well, what’s different this time? To this day, thePUT Worked because the central bank had no price to pay – there just wasn’t really any inflation. This time, despite all the risks to economic activity, Powell recalls his original role and that is maintaining price stability, and they are not really stable today. Therefore, the Fed’s face is narrowing and our main question in looking at 2022 is can the Fed raise interest rates when markets fall?
| China and Evergrand
Another story we must continue to follow is the bankruptcy of the Chinese real estate giant Evergrand Group (HK 🙂 which last week was officially declared as such. China’s problems in the real estate market do not end only inEVERGRANDE Since other real estate companies have not met their obligations in recent weeks including Kaisa (HK 🙂 (the third largest real estate company), Fantasy (HK 🙂 and Scenic (HK :).
It is no coincidence that the Chinese government has begun to change direction in terms of monetary policy which these days is becoming more expansive. In the past week we have seen a 0.5 percentage point reduction in the capital adequacy ratio of banks and on Friday raised the capital requirements that banks should captivate in the foreign exchange market as the pressure to appreciate the yuan has recently contributed to tightening financial conditions in China.
China enters 2022 in a very problematic situation with a sharp slowdown in economic activity and a bubbling real estate crisis in the background of the global energy crisis and disruption of supply chains do not really help. His status with a third term.
At least history shows that in the year in which the president is up for re-election, the policy tends to be more supportive and stabilizing, which is exactly what we expect to happen in the coming year as well. However, the challenges facing decision-makers in China in the coming year are expected to be greater than ever so that the spiral show between activity support and risks will be particularly dangerous. Bottom line, without the realization of an extreme event, it seems that the stock markets in China are preparing for a better year than it was ….
| In Israel this week, the consumer price index for November will be published
On the inflation front, Israel was a much more “boring” place during the crisis. True, inflation has soared and expectations have risen to levels that few thought we would reach. However, the bottom line is that inflation in Israel today stands at 2.3% and is still expected to accelerate, but according to estimates this will peak at 2.6% -2.8%, still within the price stability target.
According to Psagot’s forecast, the November index is expected to stand at 0.1%. As far as the Bank of Israel is concerned, it has already made it very clear that it is not expected to do anything before it sees the inflation environment in Israel exceed the price stability target.
When we look at the global inflation environment and the ongoing problems in supply chains, we continue to assess that the risks to inflation forecasts in Israel continue to be upward. In addition, keep in mind that in a state of weakness in global markets, the shekel will depreciate, which of course will contribute to the inflation environment. Therefore in Israel during 2022 it is a very plausible scenario.
The author is the chief economist of Psagot Investment House and has no personal interest in the review. This review is not a substitute for investment marketing that takes into account the data and special needs of each person.