How rapidly is U.S. inflation falling?


Even though inflation in the US has been going down, economists think that it will slow down in January because of rising prices for oil and used cars and continued pressure on home prices.

The Bureau of Labor Statistics’ consumer price index report for January is likely to show an annual inflation rate of 6.2%, down from 6.5% the previous month, according to a Bloomberg survey of economists. It would be the slowest rate since October 2021, but the smallest annual decline since September, since increased gas prices are anticipated to have raised the headline figure.

The annual rate of core CPI inflation, which excludes volatile food and energy components, is projected to decline to 5.4% from 5.7% in December. In addition to rising prices for used cars, analysts at Barclays believe that high rents will have prevented a larger decline in core inflation. In recent months, used-car prices have finally begun to decline after having risen dramatically during the beginning of the pandemic due to supply-chain disruptions. The most recent reading of the carefully followed Manheim used vehicle value index, however, indicates that January may represent a halt to this drop.

Due to the continued strength of the U.S. labour market, Barclays analysts have raised their CPI projections for the end of 2023 and 2024. The Bureau of Labor Statistics reported this week that the United States added more than 500,000 jobs in January, about three times the amount that had been predicted. Kate Duguid

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Will inflation prompt the Bank of England to reduce its rate of interest?

Markets and the Bank of England, which is trying to get inflation back to its goal of 2%, will also pay close attention to the UK’s January inflation data on Wednesday.

According to economists surveyed by Reuters, annual inflation in the United Kingdom has eased to a four-month low of 10.2%. That would be a decrease from the 10.5% recorded in December.

Inflation in the United Kingdom rose to a peak of 11.1% in October last year but has since decreased due to lower energy price growth. The majority of economists predict that it will continue to slow this year.

Sandra Horsfield of Investec thinks that inflation “dropped even more” in January because of “lower fuel prices and more fierce competition among retailers, as supply chain disruptions continued to get better and disposable spending was limited.”

In order to assess the pace of domestically generated price pressures, authorities will also closely watch services and core inflation. Analysts think that core inflation, which does not include food and energy prices, will drop from 6.3% in December to 6.2% in January.

Tuesday’s employment figures will also be analysed for indications of a softening labour market. Analysts anticipate that average earnings growth, excluding bonuses, accelerated to 6.5% in December, up from 6.4% in November.

Strong wage growth and higher-than-anticipated inflation could cast doubt on the forecasted easing of monetary tightening at the March 23 meeting. The markets are pricing in a 0.25 percentage point increase after the central bank raised rates by 0.5 percentage points earlier this month but signalled that it may soon stop raising rates. Valentina Romei

Will the rush into Chinese stocks continue?

This year, global investors have poured record amounts into Chinese equities, purchasing $21 billion in shares so far in 2023.

The emergence of solid economic statistics after the lunar new year vacation has bolstered investor optimism that China’s economy is rebounding following the lifting of zero-COVID restrictions in December, with the benchmark CSI 300 index climbing more than 6.25 percent year-to-date.

Analysts predict that significant inflows will continue as US GDP is anticipated to decline and individual investors have yet to enter the fray.

The next decade will be considerably better for emerging markets than the previous one, according to Charlie Robertson, chief global economist at Renaissance Capital. Emerging economies and China appear very attractive for long-term investment unless you believe the United States will outperform again in the 2020s like it did in the 2010s.

Citigroup predicts that domestic buyers could provide additional support for markets. Analysts at the bank estimate that excess household deposits rose to as much as Rmb13tn as a result of increased savings rates during the COVID-19 pandemic, allowing families to invest their excess wealth in equities.

“Flows could still boost the financial market if confidence returns and families choose revenge spending and revenge risk-taking,” analysts wrote in a note.

Long-term political challenges, such as “rising doubts about the new leadership’s expertise” and unfavourable growth projections—the IMF expects Chinese GDP to fall below 4% over the next five years—could mean China remains unpopular with some investors, according to Citi. Margaret Muir

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