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US Inflation at Crossroads


On Tuesday, US CPI data came in line with the estimates at 6% which is lower than last month's 6.4% YoY. But the problem is the continuous rise in monthly comparison that is still up by 0.4%. This means the inflation is lowering over the longer period but in shorter period changes it’s still rising.


Such a trend will make pausing interest rates very difficult for the Fed as any pause might risk the monthly price changes moving higher impacting the long term as well.


In the current release, the main rising contributor is the shelter component and the main falling contributor is piped gas. These both are essential services that cannot be changed in usage due to price change.


The shelter is mainly the increase in rents that has been a continuous worry but now might become more problematic. This might be due to an increase in mortgage rates to decades high that has resulted in lowered mortgage applications to the financial crisis level. It will result in more people opting for rent which would push the rent prices higher as the property owner is not much more concentrated.


Energy prices have been a bright spot for the past few months. But there are some increases in Gasoline prices to lower inventory. The surprise element has been Gas prices as the inventories are much higher than the average level.


The risk of inflation on the upside will be caused by a reversal in gas or crude oil prices that might happen due to the escalation of conflict between Russia and Ukraine during the Spring.

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