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· Summary ·
Inflation exceeded 9.0%. htmlThe U.S. CPI in June was 9.1% year-on-year, 0.5 percentage points higher than in May; the core CPI dropped slightly year-on-year, mainly due to the base number, and the month-on-month remained at a historically high level. The factors causing the continued rise in inflation are still energy, housing and food. In addition, the downward trend in goods inflation has temporarily failed, and service inflation remains the key to subsequent inflation trends.
Inflation is still at risk of rising. First, the growth rate of U.S. housing prices is still high, and rent inflation will still push service inflation upward; second, geopolitical risks continue, the recovery of the global supply chain is still slow, and commodity inflation may decline; third, the labor market Still tense, wage-inflation spiral pressure continues unabated; fourth, geopolitical risks are superimposed on climate change, agricultural product prices may rise more easily than fall, and food inflation may continue to rise. Taken together, we expect that U.S. inflation has not yet peaked, and there is still a risk of upward pressure in the third quarter. It is expected that the full-year CPI may be above 8.5% year-on-year, and the core CPI may be above 6.0% year-on-year.
The Federal Reserve may not stop raising interest rates. Although the current economic growth rate in the United States has dropped slightly, the unemployment rate is still at a historically low level, and the economic growth rate is also higher than before the epidemic. The core conflict of the Federal Reserve is still inflation, and we predict that the Federal Reserve may not stop raising interest rates during the year. As of July 13, CME observation shows that the market expects that the probability of raising interest rates in July is over 80%, and the probability of raising interest rates 14 times throughout the year is over 90% (assuming 25 BP each time).
Inflation exceeded 9.0%. htmlThe U.S. CPI in June was 9.1% year-on-year, up 0.5 percentage points from May and a new high since November 1981. Core CPI fell slightly by 0.1 percentage points year-on-year to 5.9%, falling for three consecutive months.
However, from a month-on-month perspective, the seasonally adjusted CPI in June rose sharply to 1.3%, the highest in the same period since the 1970s. The core CPI rose to 0.7% seasonally adjusted month-on-month, the highest for the same period in the past 40 years (except for June 2021). This also shows that the year-on-year decline in core CPI is largely affected by the base effect . Even if energy and food are excluded, US inflationary pressure has never eased.
The factors causing the continued rise in inflation are still energy, housing and food. Specifically, transportation contributes the most. htmlIn June, transportation inflation rose to 19.7% year-on-year and 3.8% month-on-month, contributing more than 50% to the month-on-month growth of CPI. This may be related to the peak summer travel season, the still high pressure on the supply chain, and the still high energy prices. For example, in June, second-hand cars and trucks remained at 1.7% month-on-month, and engine fuel prices rose sharply to 11.0% month-on-month (4.2% in the previous month).
energy contribution continues to expand. htmlIn June, energy inflation surged to 41.6% year-on-year, a new high since April 1980; energy inflation rose sharply to 7.5% month-on-month, contributing nearly 40% to the month-on-month growth of CPI. This is largely related to the continued geopolitical risks. For example, the June Brent crude oil futures price is still as high as 60.1% year-on-year and 5.0% month-on-month.
living is still a major contributor. htmlResidence continued to rise to 7.3% year-on-year in June, and remained at a historical high of 0.8% month-on-month, contributing nearly 30% to the month-on-month growth of CPI. This is still largely driven by rising rental inflation. Among them, the main residence rent increased to 0.8% month-on-month, and the owner's equivalent rent also increased to 0.7% month-on-month, both at the highest level in the past 40 years.
In addition, the contribution of food inflation is also high. html Food inflation in June rose to 10.4% year-on-year, a new high since 1981; food inflation remained as high as 1.0% month-on-month, the highest in the past 40 years. The continued rise in food inflation is related to factors such as continued geopolitical risks and drought.
In our report "How will geo-political risks affect global food?" ——Illustrated Macro Issue 89" pointed out that as of July 5, as many as 23 countries had adopted various grain export restrictions (compared to only 4 countries at the beginning of the year). Considering that the weather conditions in the new season are not optimistic; the situation between Russia and Ukraine has not significantly eased; and the warming of global trade protectionism, which may intensify structural contradictions in the context of overall tight supply, is the driving force behind the rise in global food prices. Still relatively sufficient, food inflation will continue to push U.S. inflation upward.
Commodity inflation is still high, and service inflation is still the key. From a structural perspective, commodity inflation rose to 13.6% year-on-year in June, and commodity inflation expanded to 2.1% month-on-month. Among them, core commodity inflation continued to fall to 7.2% year-on-year, falling for four consecutive months; core commodity inflation rose to 0.8% month-on-month, mainly due to a sharp increase in durable goods to 0.7% month-on-month.
html Service inflation in June continued to rise to 6.2% year-on-year, rising for 10 consecutive months. Service inflation rose to a high of 0.9% month-on-month. Among them, core services inflation rose to 5.5% year-on-year, rising for 10 consecutive months; core services inflation rebounded to 0.7% month-on-month, still at a historically high level. considers that as the epidemic in the United States gradually eases, U.S. inflation will continue to shift from goods to services, and service inflation accounts for more than 60% of inflation and remains the key to subsequent inflation changes.Inflation is still at risk of rising. First of all, the growth rate of U.S. housing prices is still at a high level. For example, as of April, the growth rate of U.S. housing prices has been above 20.0% for three consecutive months. Considering that housing price growth leads rental inflation by 6-12 months, rental inflation will still drive Services inflation is rising. Secondly, geopolitical risks between Russia and Ukraine continue, the recovery of the global supply chain is still slow, and the downward trend in commodity inflation may be limited. Furthermore, the U.S. labor market remains tight, and the wage-inflation spiral pressure continues unabated. Finally, geopolitical risks are superimposed on climate change, agricultural product prices may rise more easily than fall, and food inflation may continue to rise.
Taken together, we expect that U.S. inflation has not yet peaked, and there is still a risk of upward pressure in the third quarter. It is expected that the full-year CPI may be above 8.5% year-on-year, and the core CPI may be above 6.0% year-on-year. The core PCE that the Fed is most concerned about may be close to 5% year-on-year, which is much higher than the Fed's monetary policy target .
The interest rate hike may not stop. Although the current economic growth rate in the United States has dropped slightly, the unemployment rate is still at a historically low level, and the economic growth rate is also higher than before the epidemic. Therefore, economic growth is not the core conflict of the Fed, but inflation is. Therefore, even if the economic growth slows down slightly, the Federal Reserve will most likely not stop raising interest rates during the year.
As of July 13, CME observation shows that the market expects the probability of a 100 BP interest rate hike in July to rise sharply to more than 80%; the expected probability of 14 interest rate hikes throughout the year exceeds 90% (assuming 25 BP each time).
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