Inflation indicators should become hot again in September and the next few months

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Shoppers carry bags of purchased goods at the King of Prussia Mall in King of Prussia, Pennsylvania, on December 8, 2018.

Mark Markla | Reuters

Consumer inflation is expected to soar in September at the same rate as in August, and economists said that more hot data may emerge.

Economists predict that when the consumer price index is released at 8:30 am Eastern Time on Wednesday, the index will rise by 0.3%, or an annualized growth rate of 5.3%. According to Dow Jones data, excluding energy and food, CPI is expected to increase by 0.3% month-on-month and 4% year-on-year.

So far, some economists have predicted that inflation has peaked, but supply chain pressures, rising energy prices, and rising rents and medical costs may make inflation more diffuse and persistent.

“I think it might be very hot,” said Diane Swonk, chief economist of Grant Thornton. “It looks like we might get broader inflation. There is a supply shock there. You start to be affected by energy prices and other factors.”

Since the economy began to reopen, the global supply chain has been at a standstill. The goods are either late or not available at all, which leaves American companies out of stocks from sports shoes to semiconductors.

The Fed’s view is that due to supply chain disruptions, the surge in inflation this spring and summer is related to temporary factors. But recently, some officials have indicated that the risk of inflation may be greater.

What the market is worried about is that higher inflation data is a harbinger of a period of rising prices, which will force the Fed to accelerate the pace of interest rate hikes. In their latest forecast, about half of Fed officials expect to raise interest rates next year, and the central bank is expected to announce soon that it will begin to reduce the scale of bond purchases.

Fed officials expect an inflation rate of 2.3% next year. This is higher than the 1.8% they predicted a year ago, when the supply chain was an important factor. The Fed focuses on core personal consumption expenditure inflation data, not CPI.

The International Monetary Fund also said on Tuesday that it has seen the impact of supply chain chaos. The International Monetary Fund stated in its World Economic Outlook that global GDP is expected to grow by 5.9% this year, which is 0.1 percentage point lower than the July estimate. It blamed Covid and supply chain issues.

Swank added: “The question is whether we have reached the peak of the hot numbers. This is not clear.” “We are not only concerned about whether it is cooling, but whether it is cooling fast enough that it won’t give the Fed. This brings worries and problems, which is unclear given the potential inflationary pressures brought about by housing and medical expenses.”

Joe LaVorgna, chief economist for the Americas at Natixis, said that inflation may continue for several months. “If you get a better CPI report, you won’t get a completely clear sign,” he said.

He said that two persistent problems make inflation likely to continue to rise in the coming months. One reason is that the supply chain interruption has led to very low inventories of certain commodities, and the other reason is the high energy prices.

LaVorgna said that the surge in oil and gas is a relatively new factor that changes the outlook for inflation. So far this year, oil prices have risen by more than 65% and natural gas prices have risen by 110%.

According to data from AAA, gasoline prices have soared recently. In the past year, unleaded gasoline has risen by more than US$1 per gallon. Only last week, the country has risen by 7 cents per gallon to US$3.27.

“If you have a cold winter, we will see higher prices and what will happen to inflation?” he said.

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