September 20, 2021

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Core inflation slows in the US after months of sharp increases

Core inflation slows in the US after months of sharp increases

Year-on-year US consumer price index (CPI) rose 5.4 percent in July, while adjusted consumer price index (CPI) for energy and food prices (core inflation) rose 4.3 percent.

Core inflation has fallen somewhat since the previous survey in June, when annual growth was 4.5 percent.

Up front, inflation was expected to grow 5.3 percent year-on-year in July, while core inflation would grow 4.3 percent, according to figures from Bloomberg.

Inflation is a term that refers to the sustained growth in the general price level of goods and services in a society for a given period. The unit of measurement is the Consumer Price Index, which has risen sharply in recent months.

Expectations of future inflation affect market interest rates in the economy and economic activity, and are therefore important for developments in financial markets.

Looking at the futures contracts in the US stock market, it appears that the inflation numbers came out as expected. All major Wall Street indices are heading for a flat open in the stock market on Wednesday.

transient factors

High inflation figures from the US in recent months have created a great deal of debate over whether the US Federal Reserve should raise interest rates earlier than was first announced.

Fed representatives previously stated that they believe high inflation is only temporary, something also confirmed by Governor Jerome Powell in the previous report. Interest rate meeting at the end of July.

Central Bank Governor Jerome Powell believes that high inflation is temporary.

Central Bank Governor Jerome Powell believes that high inflation is temporary. (Photo: Kevin Lamarck/Reuters/NTP)

“Inflation has gone up, but it largely reflects passing factors,” he said.

The central bank noted, among other things, the effects of temporary reopening and bottlenecks in global value chains, as a result of the reopening of the global economy after the pandemic. These are factors that, according to the Central Bank, contributed to raising the prices of raw materials and other input factors in production.

This is also confirmed by the current inflation figures, as energy and commodity prices contributed strongly to price growth in the US. In July, the share of energy in the CPI rose by about 24 percent year-on-year.

Markets confirm

Given the evolution of inflation expectations over the next five and ten years in the US, the market seems confident that the Fed is right that high inflation is only temporary.

Market expectations of future inflation over the next five years are higher than expectations of inflation growth over the next ten years on average. In addition, inflation expectations are much lower than current inflation figures.

This is an indication that the market expects inflation to decrease gradually over time.(Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.

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