Has inflation in the United States reached its peak? | financial times

Has US inflation already peaked?

US inflation is expected to moderate in May, a sign that inflation may have peaked, as weak consumer demand and loosening of supply chains dampen price growth.

In April, the US consumer price index eased for the first time in eight months to an annual pace of 8.3 percent, 0.2 percentage points lower than the previous month. Despite the modest decline, inflation came in above economists’ expectations and remained at a 40-year high.

However, James Knightley, ING’s chief international economist, said the second consecutive moderation in the annual rate should provide “hope that we are already past peak inflation”.

May CPI data, due on Friday, may in turn give more clues about how aggressively the Fed will raise interest rates in June and beyond.

Economists polled by Reuters had expected monthly consumer prices to rise 0.7 percent in May. Consumer price growth slowed to 0.3 percent month-on-month in April, as the rise in energy and food costs fueled by the war in Ukraine eased.

Housing, food and energy will likely continue to contribute to inflation, as gasoline prices rose in May, but this can be partially offset by auto prices and supply chain easing.

“Auto prices could be a softer component of the CPI because consumers are not willing to pay current prices, so the destruction of demand leads to an equilibrium of supply and demand,” said Stephen Englander, chief strategist at Standard Chartered.

Knightley said there have been reports of increases in inventories and imports and recent increases in auto production, which may be evidence of some improvement in supply chains. “But the backlog remains long and supply chains remain vulnerable to Covid containment measures elsewhere in the world.” Alexandra White

Will the European Central Bank stick to plans to raise interest rates in July?

With inflation hitting new records in the eurozone every month so far this year, it will be difficult for the European Central Bank to explain why it will not raise interest rates immediately when policymakers meet in Amsterdam next week.

However, that is exactly what European Central Bank President Christine Lagarde is likely to do on Thursday when she is expected to say the central bank is sticking to its previously announced plan to first stop buying more bonds before starting to raise the deposit rate from 0.5 to minus. . cent.

This means that the earliest the European Central Bank may raise interest rates for the first time since 2011 will be at its next meeting on July 21, after it stopped adding to its €4.9 trillion bond portfolio.

The main question left to resolve is how high the interest rate will be in July. The European Central Bank’s chief economist, Philip Lane, said this week that quarter-point gains were his “record pace”. But he left the door open for others to “make the argument for moving more forcefully”.

Klaas Knott, president of the Dutch central bank, and Robert Holzmann, president of the Austrian central bank, discussed the possibility of the European Central Bank following in the footsteps of the US Federal Reserve with a half-percentage point rate hike. The majority of investors surveyed by Deutsche Bank in May believe this will happen.

Andrew Kenningham, an economist at Capital Economics, predicted that “core inflation will continue to surprise the upside and this will eventually cause the ECB to move more quickly than many are now expecting” by ending its eight-year experiment with negative rates with a single buffer. . rise in July. Martin Arnold

Did the Chinese economy stabilize in May?

China’s economy was hit by a strict and widespread coronavirus lockdown in April, with many indicators dropping to two-year lows. While the severity of the restrictions largely stabilized in May – and even showed signs of temporary easing at the end of the month – the limited respite was unlikely to be enough to avoid further weak data.

Manufacturing and services PMIs came in several points higher in May but remained in contraction territory, meaning that while the rate of decline in activity has slowed, most companies are still engaging in less activity than they were in the previous month. China’s Caixin Manufacturing PMI also indicated that the time taken for orders to reach manufacturers increased “significantly” in May, suggesting that the country’s logistical problems are far from over.

Other indicators are likely to show similar muted improvements: Analysts at Citi expect retail sales, which fell 11.1 percent year on year in April, to contract 6.8 percent in May. Likewise, while analysts expect trade to recover slightly, April data suggests that the export boom days of the Covid era are over.

While Beijing on Wednesday instructed political banks to expand a credit line of 800 billion renminbi ($120 billion) to fund infrastructure spending, the overall stimulus is much weaker than it was in 2020.

There remains a question whether the slight easing of restrictions that helped ease the Chinese economy last month will continue as the country pledges to stick to a zero-Covid approach, with economists wary of potential damage from another round of large-scale shutdowns.

“Shanghai’s gradual reopening may only represent a respite rather than a turning point,” Ting Lu, an analyst at Nomura, wrote in a note. “The real turning point will be marked by a shift in China’s position on ZCS [zero-Covid stance] Rather than the main burden of Covid issues, relieving some of the lockdowns or monthly activity data.” William Langley