As the new outbreak of the destruction of the U. S. economy trend further, some commodity prices even fell sharply, the inflation rate will fall further in 2024, is expected to the end of the year the fed anchored 2% inflation target, the CPI data released on Thursday may indicate the upcoming "anti-inflation trend". Terminal Blocks, Centronic Connectors and Bicycle Spoke Reflectors should be noted.
This downward trend could prompt the Fed to stay more firmly on its path, with the market expected to start its first rate cut as early as March.
But in the case of President Joe Biden, it may struggle for him to take political advantage in his election campaign, especially as the overall economy slows or employment is falling.
The December Consumer Price Index (CPI) report, released by the Bureau of Labor Statistics (Bureau of Labor Statistics) on Thursday, could make people feel the impact of the "anti-inflation" trend in the coming months.
Statistics show that American commodity prices have generally stopped rising, and most commodities, such as car prices, have moved into falling territory.
US inflation is falling from pandemic-era highs.
There are two similar terms in the economic term —— "deflation" and "anti-inflation", and the US is probably experiencing "anti-inflation" (disinflation).
In an economy experiencing anti-inflation, prices are still rising.
However, they grow at slower rates than before.
Inflation remains positive, but at low levels.
For example, the Consumer Price Index (CPI) is a key inflation indicator to track the average prices of a basket of consumer goods and services, and the U. S. CPI rose 3.1% in November from a year earlier, down sharply from a peak of 9.1% during the pandemic in June 2022.
Sarah House, a senior economic analyst at Wells Fargo, said: " Anti-inflation is what we want to see at the moment. Anti-inflation is a better outcome than deflation.
The US core CPI is expected to return to the "3 era" Economists are widely expecting CPI growth to rebound from 3.1% to 3.3% in December, while core CPI growth, excluding food and energy, is expected to fall to 3.8% from 4%.
If core CPI year-on-year growth breaks 4% for the first time since May 2021, it could prompt the Fed to become more confident that inflation will return to its 2% target by 2024, thus consolidating expectations of a March rate cut.
" The data are likely to be very weak this year.
You may still see improvements in supply driving prices down, " said Alan Detmeister, an economist at UBS Investment Bank (UBS Investment Bank).
" We expect growth to slow sharply in the short term, but not to fall into recession.
” Over the past few months, inflation has fallen faster than Wall Street and Fed economists have expected, leading to aggressive expectations that the Fed will cut its benchmark interest rate sharply this year.
The median forecast from the latest FOMC dot plot shows that the Fed is likely to cut rates at least three times by 25 basis points in 2024, much more aggressive than Fed officials expected in September.
However, expectations of rate cuts were more aggressive, with interest rate futures markets once betting that the Fed would cut rates by more than 150 basis points in 2024, dropping to around 120 basis points after being weighed down by much more than expected non-farm data.
According to the CME Fed Watch Tool, interest rate futures markets now expect the 60% chance of a first rate cut in March, far less than the nearly 90% probability of hawkish comments from Fed officials and the minutes.
This surprising drop in inflation is largely due to a sharp downward trend in core commodity prices.
Core US commodity prices have fallen for six consecutive months through November 2023.
That follows a surge in consumer demand and supply chain disruption in prices for goods such as cars and clothing from February 2020 to May 2023.
According to the minutes of the Fed's December meeting released on January 3, Fed officials discussed whether supply chain improvements at their policy meeting last month that the trend could continue to ease the price rally.
Economists question whether there is more room for supply improvement.
"This is a huge source of uncertainty," said Sarah House, senior economist at Wells Fargo & Co.).
" Inflation initially rose faster than models and past experience predicted, and may now fall faster than before.”
”Whether housing inflation can enter a rapid decline trend is crucial But other components of the consumer price index, particularly in the services sector, remain rising.
Economists will keep a close eye on housing inflation, the biggest component of the CPI, accounting for nearly a third of the total CPI, and economists expect it may take longer to subside.
In the 12 months to March 2023, housing inflation peaked at 8.2%, well above the usual range of 3% to 3.5% in the years before COVID-19.
But housing inflation has been falling since then, falling to around 6.5% through November, and economists generally expect it to continue.
But progress is relatively slow, because housing is a lagging indicator that has not fully reflected the slowdown in rent growth in 2023.
This is partly because people only see rent changes when the lease is renewed or moved to a new location.
"By the second half of this year, we should see monthly rents very, very close to those seen before the COVID-19 outbreak," said Detmeister from UBS.
According to a Bloomberg survey conducted in mid-December 2023, economists expect the ——, a core inflation index, to fall to 2.2% by the end of the year, helped by a more rapid decline in housing inflation in 2023.
This is close to the pre-pandemic criteria.
Consumer survey showed improved confidence in the inflation outlook —— Although this may be partly related to a drop in gasoline prices in the last quarter of the year.
Food prices are still rising from a year ago, but not as fast as they were.
Low inflation itself should help President Joe Biden win re-election before the November election because voters have cited prices and the economy as their main factors in a poll.
But a weaker job market —— Many forecasters, including UBS (UBS) and Wells Fargo (Wells Fargo), expect the job market to weaken this year as higher interest rates hurt growth and hiring, while a weaker labor market could undermine the political benefits of slowing inflation for the current government.
Sarah House, senior economist at Wells Fargo, said: " If this slowdown is —— at the cost of weakening demand and this is related to the job market, it could be a offset factor for the Biden administration.
"" This will be a mix of inflation and job market growth, and the direction of consumer confidence.
Post time: Jan-23-2024