US inflation as expected – dollar fall

We have some observations. A few consistently support the story of inflation and a few do not.

Let’s start with the points that support inflation:

1. Eating out of the house was 0.8% more expensive in a month.
2. Inflation is no longer driven by secondary cars.
3. Homes rose 0.4% again.
4. The price of new cars is still rising.

The first argument is particularly strong, as it relates to labor costs and is a key component of total spending in the United States. The second argument is related to the argument in previous editions that inflation is mainly driven by secondary cars. Now inflation is at 0.5%, which is 6% year-on-year, well above the central bank’s target.

May present counter-arguments for continued inflation.

1. Headline inflation was 0.3% lower than expected.
2. Cars are still expensive due to production problems.
3. Clothing saw 0% inflation.

As we wrote earlier, real (permanent) inflation is deflation, and it is not the equivalent of high prices for many products. Excluding major inflation, volatile commodities and food inflation was only 0.3%. Moreover, inflation seems to continue to be a barrier in the production chains.

Answer from USD

In IG, there is a basket of US dollars, which brings the US dollar against the basket of currencies that the country trades. The table below shows that the initial reaction of the dollar was negative. It makes sense if the market expects higher inflation, because a tight end (from the central bank) seems more distant.