US inflation is falling, but not enough. We see consequences
Inflation in the US is falling, but not enough, and this is having consequences. If inflation doesn't fall enough it makes no sense to lower interest rates, and this time it doesn't appear to have fallen enough.
The U.S. annual inflation rate fell to 3.1% in January 2024 after a brief increase to 3.4% in December, but came in higher than forecasts of 2.9%.
Energy costs fell by 4.6% (against -2% in December), with petrol falling by 6.4% (against -1.9%), the gas distribution service falling by 17.8% (against -13.8%) and fuel oil which fell by 14.2% (against -14.7%).
Meanwhile, prices increased at a slower pace for food (2.6% vs 2.7%), housing (6% vs 6.2%), new vehicles (0.7% vs 1% ), clothing (0.1% vs 1%), medical care (3% vs 4.7%) and transportation services (9.5% vs 9.7%) and continued to decline for cars and used trucks (-3.5% vs -1.3%).
Compared to the previous month, the CPI rose 0.3%, the highest in four months, and higher than forecast by 0.2%. Furthermore, annual core inflation remained stable at 3.9%, compared to expectations of a slowdown to 3.7%. The monthly rate rose to 0.4%.
Here is the relevant graph:
So with inflation not falling as it should, which is at the same level as two months ago, why cut rates, or rather why cut them soon. Everyone on the stock exchange and on the foreign exchange market must have thought this, especially towards those currencies whose central banks have not raised real rates.
The Bank of Japan did not increase rates and now the Yen has weakened against the dollar, returning to 150 Yen per USD
Likewise, the Turkish Lira continues to devalue, on a now continuous trend
Even the US stock market, for example the SP500 index, was affected by this news which was not particularly positive for the stock market itself:
It will take a better inflation outcome to push the Fed into action, especially until the jobs data worsens. The BLS, the office that collects and distributes employment data, still manages to subtly manipulate the data to make it appear positive. After all, there are elections, and I think that until the elections or shortly before, not much will change. Could September be a good month?
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The article US inflation is falling, but not enough. We can see the consequences coming from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/linflazione-usa-si-abbassa-ma-non-abbastanza-si-vedono-delle-conseguenze/ on Tue, 13 Feb 2024 20:30:28 +0000.