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US Inflation Fight - Final Round

The US inflation release last week marked the first substantial reversal in the falling trend for CPI as well as PPI. But keeping the focus on CPI, energy products were the main cause for reversal and airfares witnessed the largest fall.

In the nervy category, most of the fuel prices were up by more than 5% on a monthly basis. The largest rise was in Motor fuel which was up 9% month-on-month . Another item that moved up was motor vehicle insurance. Both of these items might impact the automotive demand in the coming months along with supply issues due to the ongoing union strike.

Fed swap market reacted by reducing the odds of a rate hike in the November meeting from 38% to 27% within a week. Expectations of no reaction from the Fed in September and little chance in November are being justified by investors. The Fed might continue with a data-dependent trajectory as it focuses on Core PCE inflation.

Whether the worst-case scenario of a hard landing or the best-case scenario of a small slowdown will play out? The answer to this might be unfolding in front of everyone in the next six to nine months as the fight enters the last phase.


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