August CPI Rises Only 0.3% Month-on-Month
Government Bond Yields Fall, Dollar Weakens
Concerns Over Global Economic Growth Slowdown
Stagflation Fears Spread
[Asia Economy New York=Correspondent Baek Jong-min] The US Consumer Price Index (CPI) for August rose slightly less than expected, lowering the likelihood that a tapering (reduction in asset purchases) decision will be made at the Federal Open Market Committee (FOMC) meeting next week. Amid persistently high inflation, concerns about stagflation are growing as forecasts predict a downturn not only in the US but also in the global economy.
The US Department of Labor announced on the 14th (local time) that the August CPI rose 0.3% compared to the previous month. This increase was slower than the market expectation of 0.4% and the previous month's 0.5% rise. CPI had increased by 0.9% in June and 0.5% in July. On a year-over-year basis, the August CPI rose 5.3%, slightly down from 5.4% in the previous month.
The core CPI, which excludes fuel and food, showed an even smaller increase. Core CPI rose 0.1% month-over-month, significantly below the market expectation of 0.3%. On an annual basis, it increased by 4.0%, showing a notable slowdown compared to the expected 4.2% and the previous month's 4.3%.
CNBC reported that although the August CPI remains at its highest level in 13 years on an annual basis, it could signal a potential easing of inflationary pressures.
The market's focus is on how this CPI data will affect the Fed's tapering decision. Market experts believe that the August CPI will be a burden for deciding tapering at the upcoming FOMC meeting next week. Art Hogan, Chief Investment Strategist at National Securities, said, "The Fed will discuss tapering at the September meeting but is expected to announce implementation within the year at the November meeting."
Shepardson, Chief Economist at Pantheon Macroeconomics, forecasted, "The recent slowdown in economic indicators will ease market and Fed inflation expectations."
Fiona Sinkota, Senior Analyst at City Index, explained, "As inflation indicators weaken, investors' expectations that the Fed might start tapering early have diminished." Given that the Fed has effectively signaled tapering within the year, if no tapering decision is made at the September FOMC, it is highly likely to be decided at the November FOMC.
The New York Times also reported that the slowdown in the August CPI rise is welcome news for the White House and the Fed. Jared Bernstein, member of the White House Council of Economic Advisers, said, "The August CPI aligned with the expectations of the White House, the Fed, and most experts. We will continue to monitor the indicators carefully."
The market reflected this assessment. On the day, the US 10-year Treasury yield widened its decline after the CPI announcement, dropping by 0.047 percentage points to 1.277%. As Treasury yields fell, the dollar's upward momentum weakened, and gold prices recovered to the $1,800 per ounce range.
The problem is that the likelihood of an economic downturn has increased. According to a survey conducted by Bank of America (BOA) among global fund managers, only 13% responded that the world economy would improve over the next 12 months. This is a 14 percentage point drop compared to the same survey in August and the lowest level since April last year.
This aligns with forecasts that inflation will persist due to rising housing rents, heightening concerns about stagflation.
BOA expressed concerns that recession and inflation are making stagflation more visible.
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