"Energy and Housing Price Surge Deepens Inflation"
"Possible 0.25%P Interest Rate Hike by End of Next Year"
[Asia Economy Reporter Hyunwoo Lee] As the U.S. Consumer Price Index (CPI) recorded its highest level in 31 years at 6.2%, forecasts predicting further inflation increases are emerging. Inflation fears, including projections that this month's CPI could approach 7%, are expected to continue into the first half of next year. Accordingly, there are also expectations that the U.S. Federal Reserve (Fed) may implement interest rate hikes as soon as next year, about a year earlier than previously anticipated.
According to Bloomberg News on the 10th (local time), market experts forecast that U.S. inflation could continue to rise. Michael Feroli, Chief Economist at JP Morgan Chase, said in an interview with Bloomberg News, "The November CPI is expected to reach 6.8% year-over-year," adding, "Sustained surges in energy and housing prices, combined with base effects, are likely to intensify inflation through next spring."
Earlier that day, the U.S. Department of Labor announced that the October CPI rose 6.2% compared to the same month last year. This exceeded the market consensus of 5.9% compiled by The Wall Street Journal (WSJ), surpassing the 6% mark. This figure is the highest in 31 years since December 1990, when it recorded 6.3%.
The main factor driving the highest inflation in 31 years is attributed to the global energy crisis. Energy prices rose 4.8% in just one month due to the increase in international oil prices, pulling up prices of other items simultaneously. Food prices increased by 0.9%, while used car prices rose 2.5%, new car prices increased by 1.4%, and vehicle prices overall pushed goods prices up by 1.5%.
Service prices also rose by 0.6%. In particular, housing costs, which account for more than one-third of the total CPI, surged 0.5% in one month. This is attributed to already skyrocketing housing prices. Based on the S&P Case-Shiller index, U.S. housing prices had risen 19.8% year-over-year since August.
As the inflation surge is expected to progress from a short-term trend to a long-term one, concerns are growing that the Fed will tighten monetary policy sooner than expected. James Knightley, Chief Economist at ING, stated, "The economy is growing at around 6%, inflation has exceeded 6%, and the economy is effectively normalizing, reducing the justification for further stimulus," adding, "A tapering schedule is expected to be agreed upon about three months earlier than previously forecast, within the first quarter of 2022, and at least a 25 basis point (0.25%P) interest rate hike is expected by the end of next year." Previously, market experts had estimated the Fed's rate hike timing to begin in 2023.
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