Has US Inflation Bottomed?
Sober Look | Apr 16, 2014 02:30AM ET
Some analysts are beginning to suggest that inflation in the Unites States may have bottomed. As discussed earlier this year, US inflation indicators were pointing to the lowest rate since 2009. Are the global disinflationary pressures going to push the rate of price increases in the US to new lows or have we hit the bottom?
First of all, what is the market telling us? Market expectations of future inflation remain subdued, with the so-called breakeven (implied from TIPS) rates still near the 3-year low.
The situation with consumers is similar - inflation expectations remain low relative to historical data.
With expectations at the lows, why are some analysts calling the bottom on inflation in the US? Here are a few reasons:
1. Looks like producer prices are showing signs of life, as the latest PPI figure came in above expectations.
The index has recently been changed to include a larger swath of the economy and it was those newer components which showed increases.
GS: - Headline producer prices rose 0.5% in March (vs. consensus +0.1%), while core prices rose 0.6% (vs. consensus +0.2%). The largest contributor to the unexpectedly large gain was trade margins—an implicit profit measure—which rose 1.4%. Within this category, there were large gains in flooring (+8.1%), chemicals (+4.7%), cleaning supplies (+4.0%), and apparel (+3.3%). The stronger March figures in this category followed a 1.0% decline in February, which pulled the core PPI down to -0.2%. The PPI for finished goods ex-food and energy—the "old" core PPI—rose a more typical 0.1%, consistent with subdued pipeline inflation.
Get The News You Want
Nevertheless this increase got some people thinking.
2. Today's CPI increase was also firmer than expected, a great deal of which was due to rising costs of shelter and food (not great for the US consumer).
3. In spite of the weakness in some commodity prices driven by China's slowdown, commodity indices are generally off the lows.
In particular, the energy sector rallied recently, with both gasoline and Natural Gas prices on the rise.
4. Some senior Fed officials are beginning to talk about inflation bottoming out (could of course be wishful thinking).
James Bullard: - "One thing you can say is that while inflation has drifted down ... it kind of bottomed out in the past nine months, and I think it's poised to go higher, back towards our target"
Given the data thus far, it's difficult to make a reasonable projection at this point. With low inflation priced in however, any turnaround will take the markets by surprise.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.