Quite an American mood – Newspaper Kommersant No. 5 (7450) of 13.01.

The decline in energy prices led to an additional slowdown in inflation in the United States: in annual terms, the figure dropped to 6.5% – the level of autumn 2021. By November 2022, inflation had fallen by 0.1%, the first time since May 2020, when prices sank amid lockdowns. A gradual slowdown in prices is expected to ease pressure on the US Federal Reserve, which was forced to implement a record-breaking round of monetary tightening in decades last year. As expected, the regulator will continue to raise the rate for some time, but will slow down – in January, analysts and investors expect an increase in the key rate by only 0.25%. Positive statistics on inflation also caused a reassessment of the possible peak Fed rate – now a reversal is expected at 5%.

American inflation in December in annual terms slowed down from 7.1% to 6.5%, the US Federal Bureau of Labor Statistics reported – this is the lowest since October 2021. US President Joe Biden said on Thursday that “inflation is clearly moving in the right direction.” Price growth has been consistently slowing down since June 2022 – at its peak, dollar inflation reached 9.1%. In comparison with November (seasonally adjusted), in December it decreased by 0.1% – this is the first monthly decrease in inflation since May 2020 (an increase of 0.1% a month earlier).

Core inflation in the US (excluding energy and food) in annual terms has been declining since September – in December to 5.7% against 6% in November, although the monthly increase in the indicator accelerated from 0.2% to 0.3%.

Price reduction for fuel was the main reason for the slowdown in price growth – in December, the sub-index fell by 4.5 p.p. after falling by 1.6 p.p. in November (excluding October, US energy prices have been declining since July), although still makes up 7.3% (in June – 41.6%). A more significant annual increase was shown only by food – plus 10.4%, prices here, on the contrary, maintain a positive monthly increase throughout the second half of the year, although its pace is also slowing down (0.3% in December against 1.1% in July). The increase in prices for services amounted to 7%, including rent — 7.5%, transportation – 14.6%. Among manufactured goods Cars showed the highest growth — year-on-year they rose by 5.9%.

A slowdown in inflation will reduce pressure on the Fed, which in 2022 carried out (and, apparently, is completing) the most significant cycle of tightening monetary policy since the early 1980s – to combat rising prices, the regulator has consistently raised rates from near zero (lowered back in the spring of 2020 year to mitigate the effects of the coronavirus pandemic) to 4.25-4.5%. In March, the regulator raised the rate by 0.25 percentage points, in May – already by 0.5 percentage points, followed by four rounds of rate increases by 0.75 percentage points (in June, July, September and november), in December the Fed again slowed down rate increase to 0.5 p.p.

At the same time, according to the forecast of analysts surveyed by the Federal Reserve Bank of Philadelphia, by the end of this year, dollar inflation will slow down to 3%, the regulator itself predicts 3.1%.

The prospects for a tighter monetary policy of the leading central banks – and primarily the US Federal Reserve – have been considered by economists for a year now as one of the key risks of a decline in global economic activity (raising rates leads to higher lending costs). Now this risk is likely to be reconsidered – expectations of the “peak” of the Fed rate have decreased from 5.5% to 5% .25%). Investors are waiting for the end of the tightening cycle in March, and the reversal of the Fed’s policy in the middle of the year, the comments of the head of the regulator, however, still sound more accurate: on Tuesday, Jerome Powell said that the committee could take measures “that are not popular in the short term,” pursuing long-term goals.

Capital Economics notes that the acceleration in core inflation growth was driven only by rising rents and could slow in the coming months, leading to a faster-than-expected decline in inflation – but it will take more to convince the regulator to stop the monetary tightening cycle. a couple of months” to obtain confirmation of the softening of the situation in the labor market and the weakening of wage growth.

Meanwhile, global growth (and commodity prices) could also be supported by the lifting of coronavirus restrictions in China – the center expects the country’s GDP to grow by 5.5% this year (2% according to previous forecasts).

“Recent inflation data made a 0.25 bp rate hike more likely. at the next Fed meeting, although the data was mostly at the level of consensus expectations,” said Mikhail Denislamov, senior analyst at Freedom Finance Global. This decision may also be supported by data on the slowdown in economic activity (the index of business activity in the services sector from the ISM unexpectedly dropped below 50 points in December). Some Fed officials prefer to be cautious at this stage to avoid overly negative impact on the economy and the labor market, given that a policy change is usually fully reflected in economic indicators with a delay of several quarters, the expert notes, anticipating three more rate hikes on 0.25 p.p. until May.

The dynamics of inflation in the coming months, most likely, will be decisive for the end of the cycle of its increase, but it is impossible to say exactly where the increase will stop (between 5% and 6%), Anton Prokudin, chief macroeconomist of Ingosstrakh Investments, believes. If, however, the optimism of market participants is not justified and the Fed chooses a longer rate hike, US bonds will sell out, while emerging markets may face risks in securities of low investment quality.

Tatyana Edovina