Economy US inflation below 3 percent
The stock exchanges are cheering – has inflation actually been defeated?
Status: 13.07.2023 | Reading time: 4 minutes
Fed President Jerome Powell is rapidly approaching the central bank’s inflation target
Source: AFP; Montage: Infographic WELT/Claudia Bernhardt
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The US inflation rate has fallen below three percent. That surprises experts and stockbrokers. Stock prices around the world are rising. WELT explains what is now crucial for the further development of inflation and capital markets.
Inflation is fooling the entire financial world. While last year it rose to levels that hardly any economist had expected, now exactly the opposite is happening. Inflation is falling far more sharply than analysts had expected.
In the US, inflation fell to less than 3 percent in June. That was the twelfth consecutive decline. A year ago, inflation was still over nine percent. Once again, the professionals were caught on the wrong foot. Because no one had expected such a drastic decline.
Accordingly, a debate has now flared up on the markets as to whether inflation will be permanently banned or whether it will develop a life of its own again and, after a wild roller coaster ride, will permanently settle above the inflation target of the central banks.
Source: Infographic WORLD
The answer to the inflation question is not entirely unimportant for investors. It decides on the interest rate policy of the central banks and thus on which investment strategy savers have to rely on in the future.
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If inflation is under control, this would be positive for risk investments such as unprofitable tech stocks or bitcoin. If, on the other hand, inflation persists and the key interest rates are permanently higher, other investments would be more promising.
One thing is clear: the latest inflation figures took the financial markets by surprise. Accordingly, prices on the stock exchanges shot up. The Dax gained more than 1.5 percent and again exceeded the 16,000 point mark, on Wall Street technology stocks in particular were among the winners.
The Nasdaq Composite gained more than 1.4 percent at its peak. Interest rates came under pressure on the bond markets. Yields on two-year US government bonds fell by a good 0.1 percentage points. Investors expect that the US Federal Reserve will raise interest rates at most once more and that the interest rate turnaround may soon begin to fall.
The US dollar was the big loser in the currency markets. He lost more than one percent to the euro. In the afternoon, the European common currency cost more than 1.11 dollars. The dollar slipped to its weakest level against the Swiss franc since 2015 and against the pound sterling to its lowest level since 2020.
In June, US consumer prices rose by just 2.97 percent. In May, the price increase was still four percent. The core rate of inflation, which excludes volatile energy and food prices, also weakened surprisingly sharply.
Source: Infographic WORLD
It was only 4.8 percent in June after 5.3 percent in May. This means that the core inflation rate is now also below the US key interest rate for the first time in this interest rate cycle; further evidence that the American currency watchdogs are getting closer to their inflation target.
But the experts are arguing about whether inflation has really been defeated and whether inflation will soon be close to the inflation target of two percent. The focal point is the American labor market.
It continues to develop dynamically and workers can demand higher wages and, if in doubt, go on strike. The auto union UAW and the drivers of the logistics group UPS recently threatened to go on strike if their wage demands are not met.
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Other companies, such as the Chipotle Mexican Grill fast-food chain, rely on robots that are intended to significantly reduce labor costs. Higher wages would drive inflation in the long run, but the use of artificial intelligence could keep labor costs in check.
The inflation expectations of professionals range between these two poles accordingly. For Raoul Pal, who runs the information service RealVision and publishes the investor service Global Macro Investor, AI is the biggest price sink in economic history.
Other strategists do not expect inflation to fall below the two percent mark on a sustained basis. FHN Financial’s Chris Low is skeptical that inflation will be kept in check. The fall in inflation will fuel consumers’ willingness to buy and thus counteract interest rate hikes. “We expect little further progress on disinflation for the remainder of the year.”
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