Where is the US Inflation Going?

The sudden rise in inflation has significantly impacted all economic factors after it reached record levels, significantly decreasing purchasing power. National central banks have started to speed up their monetary tightening cycles as a direct result of this, most notably in the US.

As a gauge of what businesses receive for the goods they produce, the Producer Price Index (PPI) for final demand increased by 0.3% in November and 7.4% from the same month a year earlier.

According to the most recent data from the Consumer Price Index, annual inflation has been trending down since peaking at more than 9% in June 2022. (CPI). It reached a level in November (+7.1% after 7.7% in October), which is exactly the same as the level that would be reached in December 2021. In addition, since the period ended in December 2021, November had the lowest 12-month growth.

The Federal Reserve's preferred method of measuring inflation, the personal consumption expenditures (PCE) price index, also shows signs of slowing down.

The fact that inflation held steady in October at its pre-crisis level of 0.3% surprised economists. They had anticipated a modest increase of 0.4%. In October, the PCE index's year-over-year decline dropped 6% from the previous month's reading of 6.3%.

Last but not least, looking at pay increases in the US is intriguing, especially to gauge the likelihood of a wage-price spiral.

People frequently desire an increase in their income in order to make up for the decrease in the amount of money they have available to spend when there is a rise in the cost of living. However, since businesses might decide to raise their final prices in order to maintain their profit margins, these higher salaries have the potential to continue fuelling inflation.

Should investors anticipate a decline in US inflation going forward？

There is a good chance that inflation in the United States will become more controllable if food and energy prices remain largely unchanged. In addition, despite salary increases, inflation is continuing its downward trend, which suggests that, for the time being, the risks of a wage-price spiral are being contained.

Because the shocks driving inflation aren't coming from the labour market, because real wages appear to be declining, which is easing price pressures, and because the Fed and other central banks have adopted quite aggressive monetary policies, the IMF's analysis in its World Economic Outlook indicates that “a sustained acceleration of wages and prices is unlikely.”

One thing is certain: inflation will be one of the primary themes influencing the stock, bond, and Forex markets in the upcoming year. Make sure you're using a trustworthy broker to invest in the financial and currency markets. Utilize WikiFX's almighty database to verify the credibility of your broker.

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