Inflation

Investors more pessimistic about inflation

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Investor pessimism on inflation increases, a Gallup poll released on Tuesday (July 13) revealed. According to the poll, investors’ outlook for inflation fell 15 points to -43 in the second quarter of 2021 after being reported at -28 in the first quarter of the year.

Earlier, the U.S. Bureau of Labor Statistics said the consumer price index accelerated to 5.4% in June on an annual basis from 5% in May, hitting a fresh high since August of 2008 and well above forecasts of 4.9%

Biggest price increases were recorded for used cars and trucks (soaring by 45.2%), gasoline (45.1%), fuel oil (44.5%), utility gas service (15.6%) and transportation services (10.4%). Shelter costs were up 2.6% and food 2.4%.

Stripping out volatile food and energy prices, the so-called core Consumer Price Index (CPI) rose 4.5% from a year before, the sharpest move for that measure since September 1991 and well above the estimate of 3.8%.

On a monthly basis, data showed price gains of 0.9% the biggest one-month jump since June 2008. Economists had expected consumer prices to rise by 0.5%.

Inflation has been on the rise this year amid low base effects from 2020 and as the economic recovery picks up, pandemic-related business restrictions ease and demand surges. Meanwhile, high commodity prices, supply constraints and higher wages as companies grapple with ongoing labour shortage continue to weigh on the CPI.

Us inflation rate June 2021
(Source: U.S. Bureau of Labor Statistics)

However, policymakers at the Federal Reserve expect the current period of higher inflation to be a transitory occurrence which will fade as Covid-19 related restrictions ease further and supply catches up with pent-up demand from consumers eager to get back to business, shopping, traveling and other activities suspended during lockdowns.

White House officials have also expressed confidence that the surge in prices would abate.

A survey from Bank of America released also on Tuesday indicated that professional investors are more inclined to believe that inflation will be temporary.

“Whether the inflation surge is temporary is a key question for the U.S. economy and financial markets—and the Federal Reserve’s easy-money policies aimed at helping the economy through the pandemic” the Wall Street Journal wrote on Tuesday.

“What this really shows is inflation pressures remain more acute than appreciated and are going to be with us for a longer period,” said Sarah House, senior economist for Wells Fargo’s corporate and investment bank.

“The surge in demand triggered by the easing of Corona-related restrictions is causing significant bottlenecks and price increases in parts of the economy,” said Dr. Christoph Balz, Senior Economist at Commerzbank. “Under these circumstances, the Fed’s tapering of its bond purchases is drawing closer.”

“If the gas crisis is a candle flame and lumber prices are a campfire, then growing inflation is a forest fire that has ignited, and may eventually burn through our entire economy,” Texan Sen. Ted Cruz, R-Texas, wrote on Twitter.

Meanwhile, as big fiscal stimulus policies overheated the economy, households are feeling the pain of inflation everywhere — from the supermarket to gas stations to housing, apparel, airline fares  and beyond.

Inflation is rising not only in the U.S. but around the world: Have a look at Canada, Brazil, the European Union, India and Japan, Romania, South Africa, Switzerland and you get the picture.