US inflation has already reached its peak. Today’s data, with annual progress of 5.4% and monthly variation of + 0.5% (from + 0.9% in June), suggest that the pressure on prices is destined to subside. “The annual rate of inflation has apparently peaked, however, we are not as optimistic as the Federal Reserve in thinking that we will quickly return to the 2% target area,” said James Knightley, chief economist at Ing.
Details from the July inflation report show the stability of used car prices (0.2% m / m) after their recent hike, while clothing prices remained flat over the month and air fares fell by 0. 1% after having increased significantly in recent months. These relatively low three figures are the main reason for the downside surprise on the underlying inflation figure. “However – adds Knightley – there is a feeling of an expansion of price pressures with most of the other components reporting the same increase as last month or higher. For example, leisure has shown a strong acceleration (0, 6% m / m), medical care recorded its fastest increase since February (0.3%) and housing costs recorded another 0.4% increase. “
A key reason for Ing to believe inflation will stay ‘higher the longer’ is the cost of housing. Rents represent a third of the CPI basket with movements in these components tending to lag 12-18 months behind changes in house prices. Thus the housing components of inflation will be the story to watch in the second half of this year and could add nearly a full percentage point to annual inflation alone.
According to Ing, US primary inflation will remain above 4% until the first quarter of 2022, with core inflation unlikely to fall below 3% until the summer of next year.