Weekly View: Long-Term Inflation Expectations at 12-Year High Despite Modest Rise in Producer Prices and Essential Services

This week, the Weekly View looks at the decline in inflation seen in the United States last week, which contrasts with the persistence of underlying price pressures, a dynamic suggesting a Fed pause, but without a decline. rates this year. Long-term inflation expectations have risen to their highest level in 12 years and against this backdrop, some Fed officials are eyeing stronger action. That being said, the monetary tightening seems to be bearing fruit: the University of Michigan’s consumer confidence index for the month of May, below expectations, fell to its lowest level since last November. At the same time, the negotiations on the US debt ceiling suggest the disappearance of a source of uncertainty for the markets, but caution is called for given the divisions between the White House and the Republicans. This is a pressing issue: the US Treasury Department said on Friday it had just $88 billion to pay government bills as of May 10 – a figure to compare with the $110 billion available a week earlier.

In Europe, the Bank of England’s rate hike – from 4.25% to 4.5% – reminded us that the fight against inflation was not over. But several signs of resilience in the British economy prompt us to raise our GDP growth forecasts for 2023 to +0.1% (vs. -1.0%). In addition, the G7 announced a commitment of 15.6 billion dollars over four years for Ukraine, as well as a new trade partnership aimed at countering Chinese influence.