Consumer prices continue to flare up in the United States, with Core inflation (net of energy prices, therefore) rising 0.6% on a monthly basis in September, worse than estimates, while the general inflation it goes to 8.2 percent. Price pressures do not ease and will lead the Federal Reserve to raise the cost of money by an additional 75 basis points in November, the fourth consecutive increase of this thickness, with the ultimate attempt to curb a race that seems to have no brakes. Meanwhile, the Bank of Italy has revised its estimates for the domestic economy downwards: in the base scenario, they see GDP growth in Italy of 3.3% this year, to 0.3% in 2023 and 1.4% in 2024. But beware. In the event of a freeze on Russian gas supplies, GDP will shrink by 3% this year, contract by more than 1.5% in 2023 and only return to moderate growth in 2024.
The worst, as pointed out by the International Monetary Fund (IMF) at this week’s Annual Meetings, is yet to come. In September, US consumer prices rose more than expected from the previous month; the annual figure is also higher than the consensus, which remains close to the highs of the last 40 years. Last month, prices rose by 0.4%, against expectations of +0.3 percent. This was announced by the Department of Labor, the Bureau of Labor Statistics (BLS). The Core figure, ie net of the component of the prices of food and energy goods, rose by 0.6%, against expectations for +0.4 per cent. On an annual basis, the general figure recorded + 8.2%, more than 8.1% of estimates. At the same time, US core inflation rose 6.6%, with expectations being for a 6.5% increase according to Bloomberg’s consensus.
Better will not go to Italy, as explained by the institution led by Ignazio Visco. Compared to the July Bulletin, Bank of Italy revises its inflation estimates upwards by more than half a point in the current year, by more than two points in the next and by about two decimal places in 2024. This is what we read in the update note of the macroeconomic projections for Italy in the three-year period 2022-24 compared to those published in the July Economic Bulletin, which do not reflect the assessments of the Eurosystem even if they follow the methodology used in the coordinated exercise. “The revision largely reflects the dynamics of the energy and food components, but it also affects an acceleration of the underlying component, which is transmitted, with a delay, to the increases in energy prices”, he explains. “Consumer price inflation, measured on the basis of the change in the harmonized index of consumer prices (Ipca), would stand at 8.5 per cent on average in 2022, mainly due to the strong increases in energy prices, which are reflect on the general price index both directly and indirectly due to their impact on the other components; the growth in food prices would also contribute significantly. Subsequently, a gradual stabilization of energy prices, albeit at high levels, and the easing of supply bottlenecks would favor a gradual reduction in inflation, which would reach 6.5% on average in 2023 and 2.3 in 2024, the year in which it would be mainly driven by the performance of the core component , which excludes food and energy goods. This component would increase by 3.2% on average this year, by 3.1% in the next and by 2.5% in 2024. Similarly, the Bank of Italy has revised down the estimates for the economy which now, in the base scenario, see GDP growth in Italy of 3.3% this year, to 0.3% in 2023 and 1.4% in the 2024. In the update note with respect to the bulletin, however, “a high degree of uncertainty” prevails. There is concern about a possible stop in the supply of Russian methane. Not so much for the current year, as for the winter of 2023/2024. Storages could be in danger.
The opening for Wall Street was negative. The Dow Jones lost 1.59%, the S&P 500 2.05%, the Nasdaq 2.8%. And the words of President Joe Biden also arrived, according to whom the CPI data shows “some progress in the fight against inflation, but there is still work to be done”. At the latest since 2002, at 6.92%, thirty-year mortgages in the United States, according to Freddie Mac. Symptom that a possible whirlwind of evictions and price cuts is possible in some US areas, as it was during the subprime mortgage crisis of 2006/2007. And according to David Riley, head of investment at BlueBay Asset Management, the fund has not yet been touched. “Following the inflation report, investors are raising their expectations for the Fed rate arrival point to near 5% in the first half of next year and Treasury yields are rising across the board, while stocks are plummeting. to new lows. This suffering for Wall Street is unfortunately an anticipation of what Main Street will experience, as persistent inflation will keep interest rates higher for longer ”. Higher rates, more chances of personal default, more bad loans, less cash flows for investment funds, more banking stress, less financial stability. And with possible systemic risks.
The response from the currency market was also heavy in light of the US data. The yen hit a level not seen since 1990, sinking against the greenback. The Japanese currency has retraced to 147.17 yen against the dollar level not recorded in 32 years, as financial operators believe that the Fed will continue to hike rates sharply to fight the increases in consumer prices, while the Bank of Japan will maintain. an ultra-accommodative monetary policy. The same dynamic for the euro, which loses its share on the US currency, and changes hands at 0.9658 while the pound resists rumors (later denied) of a possible change of course by the government on the budget front and is traded at 1, 1168 on the greenback. “The worst is yet to come,” warned Pierre-Olivier Gourinchas, chief economist of the IMF. The problem, for central bankers and governments, will be to understand in time the recipe to counter the adverse scenario on the horizon.