Calm on the inflation front in the United States

A shallow do not do the spring. However, the stability of the consumer price index for July in the United States is more encouraging than expected. After a jump of 1.3% in June, we knew that the drop of some 20% in gasoline prices at the pump in July would greatly limit its rise in July. From there to anticipating that consumer prices would be unchanged, there was a big step. Even core inflation, a measure of inflation that removes the impact of energy and food, fell from 0.7% in June to 0.3% in July.

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All types of goods and services combined, inflation measured by the consumer price index over the past twelve months has fallen to 8.5%. The traumatic 9.1% seen in June could be the peak expected for months by the Federal Reserve and the White House. Still, the factors generating the worst inflation in over 40 years still need to calm down. It’s not just about soaring oil prices, aggravated by the Russian oil embargo.

Problems that persist

The serious dysfunctions in companies’ supply chains for more than two years are also inflationary. But they are not resolved. Moreover, despite some progress on the labor market front, where the number of hirings is increasing sharply, and the number of unfilled positions is declining modestly, the labor shortage in the United States is still rife. . It maintains strong upward pressure on wages, while employee productivity plummets.

Finally, the large increases in public spending, decided at the start of the pandemic and maintained after its decline, have also awakened the evil that we thought had been eradicated for a long time. Halted by the Republicans in Congress, to the great regret of President Biden, they have finally stopped stimulating a demand that exceeds the supply of goods and services.

There remains the monetary policy of the Fed. After having far too long to abandon its zero key rate and its purchases of public debt, the central bank is now determined to increase the cost of credit until it sees a credible return to inflation closer to its 2% target. We are still a long way off, but July’s excellent index is an argument for Jerome Powell and his colleagues to limit the hike in their key rate to 50 points on September 21st.

Since mid-March, the Fed has already increased this rate four times, from zero to 2.50%. The last two increases, in June and July, were 75 basis points, which signaled the Fed’s desire to catch up.

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