Event
September 13, 2022 US Bureau of Labor Statistics released: August CPI was 0.1% month-on-month (previous value 0.0%), core CPI was 0.6% month-on-month (previous value 0.3%); year-on-year 8.3% (previous value 8.5%).
Core view
8 CPI decline was lower than expected, mainly because of the upward trend of core inflation. On the one hand, due to the cooling of energy commodity prices and the rebound in unemployment rate in August, the market had previously had strong expectations for a cooling of inflation. In August, the US energy CPI was 23.9% year-on-year (the previous value was 32.9%), and its contribution was significantly weaker than in July, with energy commodities being 27.2% year-on-year (the previous value was 44.9%) and energy services being slightly up 19.9% year-on-year (the previous value was 18.9%). The growth rate of gasoline fuel slowed down sharply, falling from 44% to 25.6%.
On the other hand, core inflation in the United States has risen driven by rent items and non-energy services items. core CPI fell from March to June this year and remained unchanged in July, turning to an upward 0.4 percentage points in August to 6.3% (the previous value is 5.9%). Its main driving force is: 1) Housing rents rose rapidly: in August, shelters rose by 6.3% year-on-year, a sharp increase of 0.6 percentage points from the previous value. 2) Other non-energy services rose: medical care services 5.6% year-on-year (previous value 5.1%), transportation services 11.4% (previous value 9.5%), sewer and garbage recycling services 4.6% (previous value 4.4%). In August, private non-agricultural hourly wage service production sub-item was 5.4% year-on-year, a slight increase from July.
Regarding core inflation, the US real estate market has cooled down, and what needs to be paid attention to is wage growth rate and service price inflation. 1) The Zillow rent index has fallen year-on-year. The large sample and timeliness compilation method make it generally ahead of the CPI rent items, which contains a lot of historical information due to the BLS statistical rules. 2) Powell said at the Jackson Hole meeting that the decline in inflation data is "far from enough" to constitute evidence of a slowdown in monetary policy. We believe that Fed also needs to see a slowdown in wage growth. Compared with commodity price inflation, service price inflation is usually more sticky.
The market currently mainly presents a game of two logics. The essential difference is that the slope of US inflation and unemployment rate: logic is that the unemployment rate is about to rise sharply, breaking the deadlock of the Federal Reserve's difficulty in relaxing monetary policy due to the overall increase in energy prices. Another logic is that the slope of US inflation decline will not be steep enough, and it will take a long time to return to the Fed's target range of 2%, which will raise the nominal natural interest rate level that the Fed is concerned about, and also make the Fed need to be wary of inflation rebound and maintain policy interest rates for a long time.
If U.S. inflation quickly falls back to 2%, the cost of unemployment that needs to be met is likely to be too high. 1) In our prediction of CPI, if the price of Brent crude oil surged and fell back in Q4 due to the European energy crisis and maintained a high range, and did not fall sharply due to the Iranian issue or the breakthrough progress of the Russian-Ukrainian conflict, then in 2023, the unemployment rate needs to rebound to more than 4.5% and the core CPI month-on-month fluctuation center is controlled at 0.2%, so that CPI can quickly fall back to a level close to the Federal Reserve's target range. 2) Under the Fed's long-month forecast framework for core PCE, both the import price index and inflation expectations indicators have fallen, and the expectation of a stronger dollar and recession will continue to play a role in lowering core inflation. Although the US CPI decline in August was lower than expected, the dawn of continued cooling of inflation has emerged.
Therefore, we once again emphasize the views reported in the previous report that the Fed's employment target will ultimately defeat the inflation target. If the unemployment rate rebounds for three consecutive months and exceeds the long-term equilibrium level of June SEP at 4.0%, then the Fed needs to start dealing with the real recession.
Financial market expectations were dashed. After the data was released, the three major stock indexes of opened on September 13. On September 13, the S&P 500, the Dow Jones Industrial Average, and the Nasdaq fell by 0.64%, 0.87%, and 0.30% respectively; 10Y and 2Y US bonds rose by 2.3BP and 2.9BP respectively.We maintain the views of the previous report. Considering the valuation adjustment, the constraints on US corporate profits by the European energy crisis in Q4 and the UK's recession, the "last drop" of US stocks has not been completed; the US dollar may remain strong until the Federal Reserve ends the rate hike of and the risk of European energy crisis has been lifted; 3.5% of the US Treasury 10Y yield may be the psychological barrier of the Federal Reserve.
The expectation difference is the source of all volatility, and inflation exceeding expectations may reappear overseas volatility in June. 1) HTML hike of 75bp in 29 seems to be a foregone conclusion. After the inflation data was released, the market even began to raise interest rates by 100bp next week (the probability is still low, but this possibility is not ruled out). If the subsequent development meets our expectations, it may be the most eagle stage at present, September FOMC is expected to become a watershed. The Federal Reserve's statement may turn to moderate before and after the midterm elections, and it is still expected to end the interest rate hike around the end of the year. 2) The market may reappear in June fluctuations in the next week. The May CPI was announced on June 10, and the data exceeded expectations, allowing the market to quickly price 75bp for FOMC interest rate hikes in June, and double-winning overseas stocks and bonds in 4 trading days. Expected differences are the source of all fluctuations. Back to the present, the core CPI exceeded expectations in August and may cause the market to reappear concerns about interest rate hikes, and overseas stock and bond volatility may intensify again in the next week.
Risk warning:
Overseas policy.
This article comes from the financial industry
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