By Alessandro Albano
Investing.com – The United States hit its highs since 2008 in May, but a key component of price dynamics has been almost muted, “core” or “underlying” inflation, which is very important to the monetary policy of central banks.
If the CPI index jumped to + 5% on an annual basis from + 4.2% in April which had already marked new highs since 2008, the “core” component (which does not take into account ‘volatile’ assets such as energy and food), has shot up to an annual rate of 3.8% (a record in nearly 30 years), putting further pressure on the Fed meeting on June 16.
According to James Knightley, chief economist of ING, “another big surprise for US inflation fuels further doubts about the Fed’s claims that all of this is transitory, to the point that the US central bank says monetary policy could remain ultra – accommodating for another three years “.
For the economist, there is a risk of rate hikes earlier than predicted by the Fed (not before 2023), as inflation “could be confirmed above 4% until the first quarter of 2022, in the face of inflation core that is unlikely to drop below 3% until the second quarter of next year ”.
In the pre-summer meeting, “the Fed will continue to talk about temporary inflation, with doubts starting to spread among its own officials”, but for the Dutch bank expert “the Jackon Hole symposium at the end of August will it will reveal very interesting, perhaps through a change in language that could really open the door to the announcement of a Quantitative easing tapering in December ”.
“With the economy roaring again, employment returning and inflation likely to remain higher for a longer period of time, we continue to believe that the risks are of an interest rate hike sooner than expected.” , emphasizes the economist. “The Fed keeps saying at the beginning of 2024, but we think it is more likely that the hike will happen at the beginning of 2023 and maybe even earlier”.
Meanwhile, as also happened in the immediate post-crisis 2008 with the subsequent surge in prices, Wall Street does not seem worried for the moment by the inflationary leap. He closed it on Thursday at new records of 4,239 points (+ 0.47%), with over 14,000 points (+ 0.78%). In addition, after a brief increase of over 1.525% on the CPI release, the is back in the 1.4% area with a drop of -1.4% on a daily basis.
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