Danni Hewson AJ Bell financial analyst comments on the latest US CPI data:
“If anyone had been harbouring hopes that US inflation had topped out at 8.6% those hopes have been dashed today. A potent mix of soaring prices both at the pump and at food stores has created a situation that no-one can hide from. Markets will now have to lock in the expectation that the Fed will deal out another 75 basis point hike later this month as it seeks to push the lid down on the pot that just keeps bubbling over. There’s been plenty of volatility as investors consider how fast the economy will slow once the brakes are tapped again.
“It’s all about balance and central banks are trying to walk a high wire, balancing the weight of expectation on their heads with a raft of global issues tied around their ankles. There will be plenty of debate about whether action should have been taken sooner to curb prices, and to what level external factors like the war in Ukraine have really supercharged inflation that was anticipated as the world tried to sprint off the blocks after Covid lockdowns. And there will be even more debate about how successful any central bank might be in creating that soft landing everyone is hoping for when every day seems to bring a new box of delights to dig into.
“What’s clear is the US economy is chugging along, creating so many jobs that almost every unemployed person could have signed up for two each at the end of May. There are also signs that that an inflation peak might finally have begun to arrive - looking at the big pressure points from the last month and assessing associated commodity prices its clear things are cooling off.
“But the heat will take its toll. Consumers are cutting back and that lack of spend will dent confidence in an economy that relies on consumer demand.
“And there are still those global issues to consider too. Further Covid lockdowns in China will hurt, more chess moves by the Kremlin could blast gas prices into the stratosphere, and trading partners might suffer their own declines.
“A hawkish stance has certainly bolstered the dollar, which has gained parity with the Euro for the first time in 20 years, but no one expects today’s gains won’t come with a price. The question is how big will that price be and how long will it take to pay it?”
