Benign US CPI inflation is unlikely to stop the Fed from cutting interest rates
US consumer price inflation (CPI) rose 0.1% during the month of August, according to data published today by the US Bureau of Labor Statistics.
US consumer price inflation (CPI) rose 0.1% during the month of August, according to data published today by the US Bureau of Labor Statistics. The year-on-year increase in the headline inflation is 1.8%, the same rate as the previous month, while the core rate (excluding food and energy prices) is 2.3%, up slightly from 2.2% in July.
Commenting on the release, Daniel Casali, Chief Investment Strategist at Smith & Williamson, said:
“Despite underlying core CPI inflation tracking above the Federal Reserve’s target ceiling of 2%, the outlook for consumer prices is still benign. The Fed’s preferred inflation indicator, the personal consumption expenditures deflator, is running lower at around 1.6% per year. We do not expect the Fed to change its interest rate policy based on these figures. We still expect the Fed to cut interest rates one or two times for the remainder of this year.
“Inflation continues to be subdued despite the potential impact of higher tariffs on imported consumer goods from China. The effect of cheaper consumer goods from globalisation continues, along with improvements in technology that lowers the cost of production.”
“Disinflationary forces are also being fed by the high level of debt, not just in the US, but globally. With no signs of restraint and a widening US fiscal deficit, debt levels will continue to rise. Over the longer term, higher levels of public debt borrow growth from the future and encourages the private sector to raise the savings rate, which is disinflationary.”
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back, in total, the original amount invested. Past performance is not a guide to future performance. Rates of tax are those prevailing at the time and are subject to change without notice. Clients should always seek appropriate advice from their financial adviser before committing funds for investment. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.
Smith & Williamson Investment Management LLP
Authorised and regulated by the Financial Conduct Authority.
Registered in England No. OC 369632. FRN: 580531
Smith & Williamson Investment Management LLP is part of the Tilney Smith & Williamson group.
© Tilney Smith & Williamson Limited 2021
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.