Calling the peak of the current wave of inflation is a painful exercise for economists and central bankers, who have been proven wrong many times over the course of the past year.
But Wednesday’s data showed that some measures of inflation have cool In the world’s two largest economies, it is likely to spark a debate about whether the worst could be over after a year of dizzying price increases.
U.S. consumer prices were flat in July from June as the cost of gasoline plummeted, providing much-needed relief to American consumers. price stability escalates during the past two years.
And China’s factory inflation fell to a 17-month low on an annualized basis while consumer prices rose less than expected.
After falsely predicting last year that high inflation would be temporary, most central banks, including the US Federal Reserve, have stop try to give an exact date when they expect current price growth to peak.
US central bank officials watch inflationary decelerated in the second half of the year, the European Central Bank set a third-quarter high and the Bank of England hit an October high.
Here are some key data shaping the inflation debate:
Raw materials are getting cheaper…
The main culprit behind last winter’s spike in consumer prices – energy and other raw materials – could be a signal of falling inflation this time around.
Prices of key commodities such as oil, wheat and copper have fallen in recent months after surging earlier this year. Oil and food skyrocketed after Russia invaded Ukraine.
The price drop comes amid weaker global demand and economic downturns in China, the US and Europe, where consumers are facing high prices.
Several indicators of inflation have taken a hit: fewer companies are reporting rising input costs and wholesale price increases are falling in many parts of the world
… But Europe’s energy bills won’t
With winter approaching on the continent, European households are unlikely to see their energy bills drop anytime soon. Recently, there have been talks about portioning ration in euro area countries, including in Germany.
This is because gas price in Europe – which for years depended on Russia for a large share of imports – is still four times higher than a year ago and close to a record high. Had a lot of uncertainty ambient gas flow through the Nord Stream pipeline.
Even in the UK, which has its own gas but little storage space, consumers could see their electricity bills skyrocket in October when the current price cap expires.
There is bad news for German drivers, who will see a subsidy at the gas pump set to expire at the end of August.
Expectations are (mostly) under control
Some central banks may take solace that investors have not lost faith in them.
Market-based measures of inflation expectations in the US and euro area are just above the central banks’ 2% target, while they still remain uncomfortably high in the UK.
After the Federal Reserve meeting last month, Central Bank Chairman Jerome Powell emphasized that the Fed is ready to use all of its tools to “bring demand for a better balance with resources.” supply to bring inflation back to our 2% target.”
Consumers in the US, euro area and UK, expect inflation to stay above the 2% target for many years to come.
According to a survey conducted by Reuters news agency, the vast majority of economists polled think inflation will continue to soar for at least another year before falling significantly. About 39% of economists polled said they expect inflation to stay high in 2023.
The underlying price may be trending down…
Core Inflation, Metric Numbers inflationary while excluding prices of volatile ingredients such as food and fuel, has begun to cool down in the US and UK. Some economists predict Japan and the eurozone will follow suit.
However, core inflation remains well above the comfort level of most central banks in both developed and developing economies. That means central banks will continue to raise borrowing costs. US Federal Reserve last month for the second time in a row raising interest rates by 75 basis points. The bank will meet again in September to consider tightening further.
Wednesday How is the US data recently interest rate hikes may have had some impact.
And an artificial intelligence model used by Oxford Economics suggests core inflation will also peak in Japan and the eurozone in the second half of the year.
The Long-Term Short-Term Memory Network, originally developed to help machines learn human language, analyzes detailed inflation data to detect patterns that help it predict future Consumer Price Indexes.
… But wages are going up
Wages have increased over the past year as the labor market tightens, but not as quickly as inflation.
The US Employment Cost Index also recently revealed that higher wages also led to a significant increase in US labor costs in the second quarter of 2022.
Labor costs per unit of production rose about 10 percent for non-farm companies in the US in the second quarter of this year, according to data released earlier this week.
One of the main factors influencing valuations in the long run is wages, and if they rise too quickly, a bullish spiral could begin.
Brent Meyer, policy adviser and economist at the Atlanta Federal Reserve, recently told Al Jazeera: “If that happens, we will have an almost self-fulfilling prophecy where the The company will start pushing prices up for their customers.
Outside of the United States, the economic recovery has been more muted, and an impending recession could make it harder for workers to negotiate lower wages.
