On September 13, U.S. Bureau of Labor Statistics data showed that the US CPI in August increased by 8.3% year-on-year, higher than market expectations of 8.1%, but still lower than 8.5% in July. Previously, the year-on-year increase in the US CPI reached 9.1%, the highest since 1981.
On September 13th local time, people shopped in a food supermarket in Washington, USA. Xinhua News Agency issued
The core CPI of the United States after energy and food increased by 6.3% year-on-year in August, higher than the market expectations of 6.1% and 5.9% higher than the previous value. Core CPI in August increased by 0.6% month-on-month, 0.3% higher than the previous value. After the announcement of
CPI, S&P 500 index futures and spot gold quickly dived , and US dollar index and US Treasury yields rose sharply. On that day, the three major indexes of US stock closed sharply lower, the S&P 500 fell 4.32%, the Nasdaq fell 5.16%, and the Dow Jones fell 3.94%. On September 14, the Asia-Pacific stock market also continued the decline in US stocks.
After the announcement of the US CPI, the global stock market has been green. Data source: wind
Guosheng Securities Chief economist Xiong Yuan said that the CPI year-on-year data released this time was only 0.2 percentage points higher than expected, and it continued to fall, but the market response was even greater than the previous data. The main reason was that the CPI residential sub-item rose sharply, and residential prices often have strong rigidity. There were very few negative values on a month-on-month basis in history, so it will have a profound impact on subsequent CPI data, which means that inflation declines will be slower than expected. At the same time, the Fed interest rate meeting will be held on September 22. Previously, the market still had a "lucky mentality" about whether rate hikes 75 basis points, but this data undoubtedly clearly stated that at least 75 basis points will be added, and the expectation of rate hikes for a long time in the future has corrected.
Which prices are rising
Data shows that the housing, food and medical price index continued to rise in August, which was the biggest contribution to the US CPI in August; and the overall inflation decline in August was mainly due to the month-on-month decline of gasoline prices of 10.6%.
looks at energy prices month-on-month. The overall energy price index in August fell by 5% month-on-month, and the decline in July was 4.6%. Among them, the gasoline price index fell 10.6% month-on-month in August, with a decrease of 7.7% in July; the electricity price index rose 1.5% month-on-month, and has grown at least 1.3% for the fourth consecutive month; the natural gas index rose 3.5% month-on-month, while the July fell 3.6% month-on-month.
, the overall energy price index in August rose 23.8% year-on-year. Among them, the gasoline price index rose 25.6%, the fuel price index rose 68.8%, and the electricity price index rose 15.8%, the largest year-on-year increase since the end of August 1981; the natural gas index rose 33%.
, looking at food prices on a month-on-month basis, the food price index rose by 0.8% in August, and the increase in July was 1.1%. Among them, the household food price index rose by 0.7% month-on-month, and the food price index outside the household rose by 0.9% month-on-month. Year-on-year, the food price index rose 11.4% in August, the largest increase since May 1979. Among them, the household food index rose 13.5%, the largest increase since March 1979; the food price index outside the household rose 8%.
specifically looks at the core CPI. After the 0.3% increase in July, the core CPI rose by 0.6% month-on-month in August. Among them, the housing index rose 0.7% month-on-month in August, higher than 0.5% in July. The rental index rose 0.7% in August, and the owner's equivalent rent (OER) rose 0.7%. The medical price index rose 0.7% month-on-month in August, higher than 0.4% in July, the price of hospitalization services rose 0.7% month-on-month, and the price of prescription drugs rose 0.4%.
Industrial Research stated that in terms of product and service classification, core services continue to accelerate year-on-year, which is the main reason why core CPI exceeds expectations. The core products of confirmed to peak year-on-year, but the absolute price decline was limited, causing the year-on-year growth rate to occur repeatedly. Among them, the year-on-year increase in core services of was mainly driven by rent, medical care and transportation. At the same time, it may be difficult to see a year-on-year rent peak in within 6 years. The strong rent increase is not surprising; medical care is also one of the "rigid" projects; the increase in transportation services is closely related to the peak summer travel season.
Industrial Research also stated that all sub-items of food prices are almost higher or the same as last month. Food and housing have maintained a year-on-year acceleration in recent months, and high inflation has begun to seriously affect the quality of life of ordinary people.
Xiong Yuan said that it is worth noting that both the US CPI and core CPI both fell temporarily year-on-year in August last year, so the low base has a certain boost to this month's data.
How will the US CPI go in the future?
Looking forward to the future of the US CPI, Industrial Research said that in terms of energy prices, the current statement of OPEC shows that it will still give the crude oil market "put protection". At the same time, except for Saudi and the UAE, the idle production capacity of major oil-producing countries is at an extremely low level, and the crude oil market remains tightly balanced. The limited decline in oil prices this year also limits the year-on-year decline in refined oil prices.
Xiongyuan said that taking into account factors such as supply and demand gap, sanctions against Russia, and the European energy crisis, the equilibrium price of Brent crude oil may be around US$90 per barrel by the end of the year, which is close to this level at present, so the pace of subsequent decline in oil prices may slow down.
In terms of food prices, Industrial Research said that the extreme high temperatures that are common around the world this year may cause large-scale food production reductions. In addition, the conflict between Russia and Ukraine is protracted, and the risk of a global food crisis cannot be underestimated. At present, the year-on-year growth rate of major grains and meat is limited. In addition to the various additional costs of food production and transportation, the influence of food prices on CPI is gradually increasing.
Xiongyuan said that the food sub-item is affected by extreme weather, geopolitical conflicts, etc., and the trend is still uncertain.
Residential Sub-item, Xiong Yuan said that U.S. real estate sales usually lead the house price for 2-3 quarters year-on-year, and housing prices lead the CPI residential sub-item for about 1 and a half years year-on-year; U.S. real estate sales continued to decline sharply since the fourth quarter of 2020, and continued to turn negative since the third quarter of 2021. House prices began to stop rising year-on-year, and continued to decline since March this year. Corresponding to the year-on-year CPI residential sub-item will slow down from the end of this year, and are likely to continue to decline from the second half of 2023.
Xiong Yuan said that the US CPI may remain flat or rebound slightly in September, and the decline after October will be smoother. The year-on-year CPI and core CPI are expected to be around 7% and 6% year-on-year respectively at the end of 2023. The year-on-year CPI and core CPI are expected to be around 3%.
hike rate by 75 basis points in September, or 100 basis points?
Interest rate futures data show that after the US CPI was released in August, the market expects that the Federal Reserve will raise interest rates by at least 75 basis points in September, and there is a probability of raising interest rates by more than 30% by 100 basis points.
Zheng Houcheng, director of the British Securities Research Institute, told The Paper that in the context of the decline of the US CPI in August that month was lower than expected and the core CPI was higher than the previous value year-on-year, coupled with the "hawkish" remarks of Federal Reserve Chairman Powell at the Jackson Hall annual meeting, it is expected that the Fed's September interest rate meeting will likely raise interest rates by 75 basis points.
"Once the rate hike is 75 basis points in September, the Federal Reserve will raise interest rates by 75 basis points for the first time in history, which will create negative news for the prices of major assets including commodity ." Zheng Houcheng said that it is expected that the US CPI will continue to decline year-on-year in the later period. Against this background, the Federal Reserve is likely to "slow down the pace of interest rate hikes." It is expected that the US CPI year-on-year probability in the first half of 2023 is between -2.1% and 5.3% year-on-year, with an average of around 2.1%. At the same time, it is expected that the Federal Reserve will cut interest rates in the third and fourth quarters of 2023, with the probability of the third quarter being greater, and the latest no more than the fourth quarter, otherwise the US macroeconomic will face greater pressure.
Industrial Research said that the current US salary growth rate is highly resonant with core CPI and inflation expectations, and the salary-inflation spiral has become a real risk. The Fed has been trying to find a subtle combination of a soft economic landing and a rebalancing of the job market in the past six months, but the stickiness of core inflation is warning that "both wants and wants" may eventually fail.
Industrial Research also stated that the recovery of the US economy in the third quarter further increased the difficulty of job vacancies. Not only are job vacancies not effectively filled, the New York Fed survey shows that job seekers’ retention and expected wages remain high. This means huge wage-inflation spiral risk. After the Jackson Hole Central Bank , the Federal Reserve has shown a policy tendency to completely reversely suppress inflation (demand).If the market would be skeptical about this before, the CPI data in August should be able to accelerate the change in market expectations.
Industrial Research said that the current market has not fully priced interest rate hikes at the end of the year to 4% or even higher, and the psychological preparation for continuing interest rate hikes next year is not sufficient. is expected to further revise the market's expectations of interest rate hikes in the near future. If the FOMC dot matrix diagram is raised in September's interest rate meeting, it is likely to further guide the expected rate hike to rise . Faced with inflation stickiness, the Federal Reserve will show its determination to fight inflation. The US dollar index and US Treasury yield are likely to remain high, and the 10-year US Treasury yield is expected to break through the previous high of 3.5%. The RMB exchange rate continues to be under pressure, but the rate is affected by countercyclical adjustments. US stocks continued to decline second bottoming .
Xiong Yuan said that based on the judgment of inflation, considering that it is only about a week before the September interest rate meeting, and Fed officials have never clearly expressed their support for a 100 basis point rate hike, and adding 75 basis points in September is still a high probability event; adding 75 basis points in November or 50 basis points is still necessary to observe the economic and inflation data from September to October, but if only 50 basis points are added in November, there is a high possibility that 50 basis points will be added in December; there is a high probability that there will be another 25 basis points in February next year, but interest rate hikes will be stopped later, and interest rate cuts may begin in the second half of next year. Therefore, November will be a key window to observe whether the Fed's policy stance turns, and asset prices may still remain volatile in the next two months.
