Also read: Inflation slows further to 1.6% in July
This measure is considered by economists as a more relevant signal on the direction that inflation is taking. “Underlying prices are moving in the right direction,” notes Rubeela Farooqi, economist for High Frequency Economics, in a note. This is, she underlines, “good news” for the officials of the American central bank, the Fed, on the front line in the fight against inflation, which could thus be stopped raising its rates. , but maintain a “restrictive policy for some time to bring prices back towards the target” of 2.0% over one year. The Fed favors another measure of inflation, the PCE index, whose data for July will be published on August 31st.
“Compelling Evidence”
The New York Stock Exchange opened higher on Thursday, rebounding from two sessions of declines, welcoming the fact that inflation did not beat expectations. The London Stock Exchange ended up 0.41%, that of Frankfurt by 0.91% and Paris advanced by 1.52%. These figures show “that our economy remains strong. Annual inflation has fallen by around two-thirds since last summer,” said President Joe Biden in a statement, who is traveling to the southwestern United States to tout his economic and industrial policy.
The pace of price increases has indeed slowed significantly from the 9.1% year-on-year peak that was recorded in June 2022, the highest inflation since the early 1980s. And July inflation offers “ new convincing proof that inflationary pressures are easing,” analyzes Lydia Boussour, economist for EY-Parthenon. “We have clearly passed the peak of inflation on the housing front, (…). Real estate disinflation will accelerate in the coming months,” she explains.
Read also: A “turning point” in the fight against inflation
Done raising rates?
The Fed has, since March 2022, raised its rates 11 times, to increase the cost of credit, and discourage consumption and investment. Its main key rate is now in a range of 5.25 to 5.50%. And opinions differ among its officials on whether or not to continue raising rates at the next meeting, on September 19 and 20. Because the risk is to press too hard on the brake, and thus, to cause a recession.
However, this scenario seems to be avoidable, whereas it seemed inevitable a few months ago. A sharp economic slowdown is nevertheless expected at the end of 2023 and the beginning of 2024. “We believe that the Fed has finished raising its rates in this tightening cycle, but will not lower its rates until the beginning of next year”, thus anticipates Ryan Sweet, an economist for Oxford Economics. And, at a time when major economies are battling inflation, China entered deflation (prices fell) in July, weighed down by sluggish domestic consumption that is complicating economic recovery.
2023-08-10 16:24:19
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