There is much to suggest that we have passed the top in terms of global inflation – after five months marked by interest rate hikes from over 60 central banks around the world – also in Sweden.
The rate of increase in producer prices in China has begun to slow down and fertilizer prices in North America have fallen by 24 percent in a few months, reports the news agency Bloomberg. There is also a downward trend in the prices of container transport and semiconductors compared with the historical record levels last year.
Far to the inflation target
In the US, the heat on the labor market is easing and many expect that lower real incomes will soon also begin to dampen consumption, despite the large savings buffets that have been built up during the pandemic.
Although it is still a long way down to the inflation target – not least in the US, where the central bank Federal Reserve (Fed) is holding the monetary policy baton.
Inflation is still hovering around the highest level in 40 years, and indicators point to a high risk that planned austerity measures could lead to shrinking GDP in the US for two consecutive quarters – which is the technical definition of recession. At the same time, the inflation outlook is uncertain in the shadow of the Ukraine war and pandemic closures in China.
“We think we will get another strong inflation figure on Friday, when commodity prices appear to be problematic again. This is a bad timing for the Fed ahead of the interest rate meeting in June,” wrote Alison Boxer, US economist at US asset manager Pimco, in a comment.
He sees signs that inflation has gained new momentum in the second quarter. But as the consumption pattern at the same time seems to be turning more and more towards services instead of goods, he assumes that inflationary pressures will ease somewhat later this year.
President Joe Biden’s historic pandemic stimulus last year was pointed out as decisive for the high inflationary pressure in the United States. Stock Photography.
Fed Chairman Jerome Powell struck with a so-called double increase in the policy rate of 0.50 percentage points – to 0.75-1.00 percent – in early May. The first steps towards liquidating the $ 9 trillion support purchase portfolio have since also been taken. And more unusually large interest rate hikes are expected in the near future.
– It will be another 0.50 percentage points up in June and July, without a doubt, says Elisabet Kopelman, US economist at the major bank SEB.
Yellen under hard pressure
She then believes that the Fed may well continue with a double increase after these two, in September.
– But it is a slightly more open question. It depends on how fast the economy slows down and whether the Fed receives further confirmation that inflation is gradually falling back, says Kopelman.
US Treasury Secretary Janet Yellen came under heavy pressure in a hearing on the 2023 budget in the Senate Finance Committee earlier this week. She was again forced to admit that it was unfortunate that she and Governor Powell had previously described the inflation problem as temporary.
“Inflation is really our biggest economic problem right now and it is crucial that we deal with it,” she said.
Fed chief Jerome Powell and his administration have a difficult balancing act ahead of them to tighten inflation so that inflation falls to the target without leading the US into a recession. Stock Photography
However, she has not given up trying to defend President Joe Biden’s support package in the $ 1.900 billion pandemic – American Rescue Plan (ARP) – which has been pointed out by critics as crucial to speeding up the inflation fire. Instead, she tried to shift the focus to the Ukraine War.
– Putin’s war in Ukraine affects energy and food prices globally. It is simply impossible for us to isolate ourselves from shocks like those from this war, she said.
“A failure”
According to SEB’s Kopelman, the Biden government and Janet Yellen will probably have to pay a high political price for the misjudgment regarding pandemic stimuli last year.
– That there was too much support money for households in 2021, it is probably quite generally accepted. So in retrospect, this was a failure, she says.
She describes high inflation as “a huge political problem” for the Democratic Party ahead of the midterm elections to Congress this fall.
– It is difficult for them to solve that issue in the short term, says Kopelman.
– Now the mid-term election is more about how the Republicans themselves manage to keep the balance between the different parts of the party and Donald Trump’s role. But for the Democrats, it is probably quite run, she adds.