James Knightley, Chief International Economist at ING, explains that today’s release of the core personal consumer expenditure deflator shows the headline rate of inflation rising from 2% to 2.3% year on year while the core rate, which excludes the volatile food and energy components, rose to 2% from 1.8%.
Key Quotes
“Both were above what the market was expecting (2% and 1.9% respectively) with both also showing the fastest rates of inflation for over six years.”
“This suggests that the next FOMC announcement (1 August) will need to see a more robust acknowledgement of the inflation pressures in the US economy.”
“We expect all inflation measures to remain under upward pressure over the summer – particularly with oil prices on the rise again – with the more widely followed CPI measure likely to hit 3% in the next two to three months.”
“With inflation rising at such a rate, nominal GDP growth will be in excess of 6%, suggesting to us that the market remains too cautious on the outlook for Federal Reserve interest rate hikes.”
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