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U.S. Inflation Soars to 9.1% – Highest in Over 40 Years

inflation

  • Median estimates of U.S. Consumer Price Index coming in at 8.8% fell short of yesterday’s white hot 9.1% print.
  • With price pressures now becoming the number one focus for policymakers, the risk that the central bank could tip the U.S. economy into recession is higher than ever, taking risk assets down with them.

Despite the best efforts by economists to forecast inflation and signs of inventory excesses, as well as a pullback in key commodity prices from recent all-time-highs, median estimates of U.S. Consumer Price Index coming in at 8.8% fell short of yesterday’s white hot 9.1% print.

Pressure will be on the U.S. Federal Reserve to act decisively on inflation, especially since employment remains robust and price pressures are the number one hot button issue for Americans.

Facing off against the fastest pace of inflation in over four decades, investors are now betting that policymakers will be forced to hike rates by a whole percentage point this month, and earlier bets of a more modest hike in September are now being replaced by wagers that a 75-basis-point rise is on the cards.

Even the more dovish Raphael Bostic, President of the Atlanta Federal Reserve, has conceded that stubbornly high inflation will require a broader range of measures to deal with.

Last month, Bostic had suggested that September might be a time for the Fed to take a pause in its tightening measures, but speaking to reporters yesterday in St. Petersburg, Florida, he made clear that,

“Everything is in play.”

And when asked if “everything” included hiking rates by a full percentage point, he replied, “it would mean everything.”

In the past several weeks, policymakers, much like the rest of the market, had been lulled into a false sense of security that inflation appeared to have peaked.

To be sure, retail inventories have been skyrocketing and commodity prices, which contribute significantly to food and fuel costs, have moderated on recession fears, leading many to believe that the worst of inflation was in the rearview mirror.

Yet retreating commodity prices and excess inventories have yet to translate to lower inflation and the Fed is under increased criticism for being behind the curve on inflation.

With price pressures now becoming the number one focus for policymakers, the risk that the central bank could tip the U.S. economy into recession is higher than ever, taking risk assets down with them.

 

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