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New figures show that the consumer price index (CPI) in the US rose by 5.4 per cent on an annual basis in June, while the consumer price index adjusted for energy and food prices (core inflation) rose by 4.5 per cent.
For core inflation, this is the highest annual growth since November 1991.
In advance, inflation was expected to grow by 4.9 per cent on an annual basis, while core inflation would grow by four per cent, according to figures from Bloomberg. Inflation figures on Tuesday thus came in well above expectations.
Inflation is a term for a sustained growth in the general price level of goods and services in society for a given period. The unit of measurement is the consumer price index, which has risen sharply in recent months.
Expectations of future inflation affect market interest rates in the economy and economic activity, and are therefore important for developments in the financial markets.
The markets are taking it easy
It does not appear that there is widespread fear of inflation in the markets after the new figures for inflation were released, where all the broad key indices on Wall Street fell cautiously by an average of 0.3 per cent at the stock market opening on Tuesday afternoon.
On the other hand, the interest rate on US government debt with a ten-year maturity, often called the world’s most important interest rate, fluctuated sharply after the inflation figures were published, and was traded on Tuesday afternoon at 1.39 per cent. This is a moderate increase from 1.345 percent earlier in the day.
Only temporary
By far the most controversial topic in the markets in recent months has been the fear of persistently high inflation in the US economy. Inflation figures from the US surprised the market in May the largest monthly increase since April 1982.
Representatives from the US Federal Reserve have stated along the way that they believe the high inflation in recent months is only temporary.
The central bank has pointed to, among other things, temporary reopening effects and bottlenecks in global value chains, as a result of the reopening of the world economy after the pandemic. These are factors that, according to the central bank, have contributed to pushing up the price of raw materials and other input factors in production.
This is also confirmed in current inflation figures, where energy and commodity prices make a strong contribution to inflation. On an annual basis, the energy share of the consumer price index has risen by almost 25 per cent.
Looking at the development in inflation expectations over the next five and ten years in the United States, it seems that the market trusts that the US Federal Reserve is right that high inflation is only temporary.
The market’s expectations of future inflation over the next five years are higher than expectations for inflation growth over the next ten years on average. This is an indication that the market expects inflation to gradually decline over time. (Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We want you to share our cases using a link, which leads directly to our pages. Copying or other use of all or part of the content may only take place with written permission or as permitted by law. For additional terms look here.
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