The US CPI and core CPI in August were both higher than expected. Core services continued to accelerate year-on-year, core commodities recurred year-on-year, and food prices rose were the main reasons for inflation exceeding expectations. This confirms the view of the Federal Reserve -month decline in inflation does not explain the problem.
This issue’s column: curb wages-inflation spiral.
The recovery of the US economy in the third quarter further increased the difficulty of job vacancies. The Federal Reserve has shown a policy tendency to completely reversely suppress inflation (demand). If the market would have doubts about this before, the August CPI data should be able to accelerate the transformation of market expectations.
once again warns that the year-on-year growth rate of US rents may not be seen to decline during the year. This is the biggest "basic" that the core CPI of the United States is strong. The supply chain pressure has eased, and the core products have reached a clear peak year-on-year. The impact of rising food prices on CPI is gradually highlighted, and the further decline in energy prices is limited.
Our VAR model and OECD forecasts both show that there is stickiness in US inflation, but the current market has not fully priced at the end of the year-end rate hike to 4% or even higher, and we are not mentally prepared for continuing interest rate hikes next year. The market expects that interest rate hikes in still has great potential for upward repairs, and the US dollar index and US bond yields are likely to remain high, and the US bond interest rate is expected to hit a new high. The external pressure and counter-cyclical adjustment of the RMB game are under pressure, but it has shown resilience. US stock continues to decline second bottoming out .
Event: inflation recurred, and it exceeded expectations again
US CPI in August (non-seasonal adjustment) 8.3%, higher than the expected 8.1%, lower than the previous value of 8.5%; core CPI was 6.3% year-on-year, higher than the expected 6.1% and 5.9% of the previous value.
In terms of product and service classification: core services continue to accelerate year-on-year, which is the main reason why core CPI exceeded 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 recur. The price level of food and beverages has accelerated both year-on-year. Energy prices fell significantly year-on-year, but the effect was offset by other sub-items.
core products sub-items were mostly the same as last month, but transportation and other items rebounded slightly, causing core products to rebound slightly year-on-year compared with last month, but are still significantly lower than the previous high. The peak has been established, but the decline rate has been repeated.
core services rose year-on-year mainly due to the promotion of rent, medical care, transportation . In the July CPI data review, we have clearly pointed out that it may be difficult to see rent peak year-on-year this year. The strong rent increase is not surprising. Medical care is also one of the "rigid" projects we have pointed out before. The increase in transportation services has a lot to do with the peak summer travel season. The year-on-year growth rate of
energy has dropped significantly, excluding electricity and natural gas accelerated year-on-year, and other sub-items have all shown a year-on-year decline. This is mainly related to the recent decline in the price of refined oil in the United States.
food prices are almost higher or unchanged year-on-year than the previous 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.
1. Column: curb wages- inflation spiral
The current US salary growth rate is highly resonant with core CPI and inflation expectations, and the wage-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.
After experiencing a technical recession, the US economy has shown resilience in the past two months. GDPNow has shown that the US economic growth has improved rapidly, consistent with our perception of high-frequency data. Historically, a sharp decline in employment gaps is unlikely to occur under a stable economy. Although the current year-on-year growth rate of job vacancy rate has dropped to around 0, the absolute level still hoveres above 7%. The recovery in the U.S. economy 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 summit, the Federal Reserve has shown a policy tendency to completely reversely suppress inflation (demand). If the market would have doubts about this before, the CPI data in August should be able to accelerate the transformation of market expectations.
2. CPI Sub-item analysis 2.1 core service
We once again warn that the year-on-year growth rate may not decline in the US rent this year. This is the biggest "basic" that the core CPI of the United States is strong. In August, core services in addition to rent also showed a steady increase year-on-year, and the " penetration rate " of core inflation is still increasing.
2.2 core products
8 core products slowed down in August, which is consistent with the forward-looking direction of the supply chain pressure index. The good news is that supply chain pressure is greatly alleviating, and both supply chain pressure and the delivery time of PMI in the US local Fed are gradually returning to normal levels. As demand weakens, the certainty of core commodities reaching peaks and falling back year-on-year is still high. However, it should be noted that the reduction of supply chain pressure may be more affected by weakening demand and changes in procurement strategies, and it cannot be easily concluded that the supply chain has returned to pre-epidemic levels.
2.3 Food
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.
2.4 Energy
Currently, OPEC's statement shows that it will still give "put options protection" to the crude oil market. By case: If the Iran negotiations are not going well, Iran's production has not returned, and OPEC does not need to reduce production immediately hedge against . At this time, Iran's production returns to expectations and expects to support oil prices; if Iran's negotiations go smoothly and Iran's production returns, OPEC will restart the hedging of production cuts, and OPEC will restart the reduction of production to support oil prices. 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 decline in oil prices this year is limited, which also limits the year-on-year decline in refined oil prices.
3. Future market outlook
The predicted value of the VAR model we built also shows the stickiness of US inflation. Although the top has appeared this year, the forecast center of the year-on-year growth rate of US CPI at the end of this year is still more than 6%. OECD predicts that the core CPI of the United States will be above 4% by the end of this year.
is currently not fully priced at the end of the year to 4% or even higher, and is not mentally prepared for continuing interest rate hikes next year. The market is expected to further revise its interest rate hike expectations in the near future. If the FOMC dot matrix chart is raised in September's interest rate meeting, it is likely to further guide the expectation of interest rate hikes up. 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 10Y US Treasury yield is expected to break through the previous high of 3.5%. RMB exchange rate continues to be under pressure, but the rate is affected by countercyclical adjustment. Precious metals are under pressure but have shown some resilience. US stocks continued to fall and bottomed out for the second time.
