15 May 2024
If you are covering the latest inflation figures from the United States, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Following two months of increases to the annual headline inflation rate, price increases in the US have fallen marginally again, with CPI now standing at 3.4%. While on the surface it is positive to see inflation fall from the previous month, looking at the trend over the past 12 months provides a different picture. Inflation has been bouncing around the 3%-4% range for a considerable period of time now, and this is now arguably singlehandedly preventing the Federal Reserve from pushing the button on rate cuts.
“To date, the US economy has been holding up despite some moderation in growth. The jobs market is showing some signs of softening, but nothing is flashing red enough to remove the laser focus on inflation. Indeed, today’s data will be a big relief to the Fed given some data points were pointing to stronger inflation than had been expected, or wanted. Gasoline costs and shelter contributed over 70% of the monthly rise in prices, but confidence may be gleaned from the fact that gasoline prices have softened in May whilst shelter costs have their own well-known measurement shortfalls. But as such, just now the Fed can continue with its messaging that it wants to see more evidence of inflationary pressures washing out of the system before rate cuts can be initiated.
“However, markets and investors are craving some certainty on what the path of interest rates looks like from here. Any rate increase this year appears to be off the table, barring any complete shockers between now and December, but inflation is proving too sticky to suggest when the cuts may begin. Having come into the year expecting a number of cuts to interest rates, investors are now having to contend with the possibility they may not see a single one from the US in 2024 – all the while the EU and UK look ready to diverge and embark on their own rate cutting cycle. The fact the data today is in line with expectations suggests we may still get one cut this year, but it remains an incredible volatile picture that the data just won’t yet resolve for us.”
