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Higher-Than-Expected U.S. Inflation Signals Need for Continued Monetary Tightening

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Higher-Than-Expected US Inflation Requires Continued Monetary Tightening, CICC Report Says

In a recent research report by the China International Capital Corporation (CICC), it has been revealed that the United States Consumer Price Index (CPI) in September experienced a higher-than-expected increase. The seasonally adjusted month-on-month CPI rose by 0.4%, surpassing the market’s anticipated 0.3%. On a year-on-year basis, the CPI increased by 3.7%, again surpassing the market’s expectation of 3.6%.

The report further stated that the core CPI, which excludes volatile food and energy prices, was in line with market predictions. It experienced a seasonally adjusted month-on-month increase of 0.3% and a year-on-year increase of 4.1%. The CICC report attributed the higher-than-expected inflation to three main factors.

Firstly, the report highlighted the rebound in owner-equivalent rent (OER) in the housing sector compared to the previous month. This contributed to the increased inflation.

Secondly, the report noted that the transmission effect of rising oil prices still had an impact on inflation. As oil prices continue to rise, this factor has put pressure on the overall inflation rate.

Lastly, the CICC report emphasized the persistence of inflation in services other than housing. This indicates that inflationary pressures in sectors such as healthcare and education remain intact, adding to the higher-than-expected inflation.

The report also highlighted an important lesson from this situation. It emphasized that the slowdown in inflation is not automatic but requires continued monetary tightening. While the Federal Reserve may no longer raise interest rates, it will be necessary to maintain high pressure on inflation. The report predicts that Fed officials will adopt a more cautious approach in their speeches in the coming weeks. They will avoid making remarks that could be interpreted as dovish by the market, indicating a readiness to combat inflationary pressures.

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Furthermore, the report suggests that investors should exercise caution regarding the outlook for US inflation. With higher-than-expected inflation, US bond yields may remain high for a longer period. This indicates that investors will likely adjust their strategies to accommodate the evolving inflation landscape.

Overall, the CICC research report highlights the need for sustained monetary tightening to curb inflationary pressures. As the US economy continues to recover, the focus will be on maintaining economic stability amidst increasing inflationary risks.

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