“Inflation in the US and UK: Latest Updates and Future Implications”

The Bank of England has just raised its key rate for the twelfth time since the start of the monetary tightening cycle, bringing it to 4.5%. And it may not be over, given the persistent inflationary pressures. Its American counterpart now has more leeway. US inflation continues to normalize. The annual rate of price increases slowed (+4.9% in April, after +5%). However, this settling is increasingly slow. It should also be noted that this price index rose by 0.4% in the month of April alone. Another point, underlying inflation (excluding energy and food) year on year is higher than that of all prices. The increase in the cost of living is not confined to energy and food. Producer prices also slowed (+2.3% in April and +3.2% for the underlying). Real weekly incomes fell by 1.1%, which is better, however, than the -3.1% recorded a year ago. Wages have a certain inertia with respect to inflation due to the absence of automatic indexation.

According to economist Patrick Artus, “the peak of total inflation, if there had been complete indexation of wages to prices, would have been 15.5% and not 9.1% in the United States”. This loss of purchasing power, associated with the tightening of bank credit conditions, is contributing to the decline in credit demand, according to a Fed survey. It can therefore gradually slow down, especially since the debt ceiling, still under discussion in Congress, is weighing a sword of Damocles on the financial markets. An agreement is essential in Congress by early June, otherwise the Treasury will no longer be able to borrow. The IMF then fears “very serious repercussions” on the global economy. The President, Joe Biden, and that of the House of Representatives, Kevin McCarthy (Republican), spoke on Wednesday. They will meet again early next week. Their teams continue to work…