The CPI remains at 2.7% in June, its highest rate in four years, due to electricity and food prices. The Consumer Price Index (CPI) rose by 0.5% in June compared with the previous month and placed its year-on-year rate at 2.7%, the same as in May and one tenth of a percentage point higher than at the end of last month, according to data published today by the National Statistics…
José Ramón Díez (CaixaBank Research) | While expected, the rise in inflation is causing discomfort due to the high levels that have been reached and the risk of it persisting at those levels for longer than desirable without investors being startled. The key is whether we are faced with an economy that is simply skidding around as it seeks to accelerate from 0 to 60 in a short time, in which case inertia will allow it to easily regain stability; or, on the contrary, overheating caused by an excessively expansive demand-focused policy could test the strength of the economic engine.
Consumer spending in the United States increased to pre-pandemic levels of around $13.4 trillion in the first quarter of 2021 from $13.0 trillion in the fourth quarter of 2020. If the pandemic can be characterised as the economic engine being parked rather than broken, pent up demand could quickly cause consumer spending to overshoot the trend from recent years.
Ofelia Marín Lozano | In March, April and May this year we will see published inflation close to or above 2% year-on-year. But this can simply be explained by the rise in oil prices. Crude oil, which a year ago, at the height of its confinement, fell to levels of around 30 dollars per barrel, is now trading above 60 dollars per barrel, is now trading at over 60 dollars. In our opinion, although inflation could pick up notably in the second quarter of 2021, with year-on-year readings above the 2% that the US Federal Reserve and the ECB have set as a benchmark for the long term, the underlying inflationary risks remain well under control and support the maintenance of an accommodative monetary policy for a prolonged period of time. Simply put: core inflation only rises consistently if wages rise and, with higher unemployment, it is very difficult for that to happen.
Mutuactivos | How would you react to an inflation figure of 4.1%, albeit temporary? In short, we believe that it could push the T-note above 2% temporarily, even a scare in the markets, but in that case it is likely that the Fed would try to influence it to moderate it: either by changing its “active passive” discourse to one of greater involvement, closer to that of the ECB, or directly by buying debt to control the yield curve.
José Ramón Díez Guijarro (Bankia Estudios) | In the more recent past, the central banks have had enough to deal with trying to combat the risk of deflation linked to the structural changes of recent decades: globalisation, ageing population, digitalisation, etc. And now, practically without any solution of continuity, they have to face a crisis which may lead to new permanent “shocks” in inflation. These would derive from changes in the consumption patterns and from the accelerated digitalisation process. Or from the intensive use of non-conventional monetary policy measures.
Chris Iggo (AXA Investment Managers) | Next month the Fed is expected to announce some changes to its long-term monetary policy framework. Many observers expect that to include an “average inflation target” which in theory means the Fed will allow inflation to rise above 2% for a long enough period to compensate for when inflation has been below 2%. It likely will need to back this up with forward guidance suggesting that rates won’t be increased until it is convinced its inflation target (and maybe an unemployment target) has been met.
Rubén Segura-Cayuela (BoAML) | We still expect a top-up of the Pandemic Emergency Purchase Programme (PEPP) by another EUR500bn to stretch until end-2021- probably announced in December. That will be necessary to accommodate the economy. But it will not suffice to tackle long-term inflation dynamics and faltering expectations. More and longer policy support is needed, urgently.
DWS | There are a few reasons to think that unlike the economy, inflation could see a V-shaped recovery. Recently published inflation data seem to confirm this theoretical view. Without taking into account the energy component, which, thanks to the oil price, fluctuated wildly in 2020, the inflation rate in the Eurozone was 1.3% in June. That is exactly the same level as at the beginning of the year.
Miguel Navascués | The Fed is continuing to buy assets and issue money to chosen subjects (for the first time not just the banks). The purchases made so far are more than double those made in 2008. However, the speed of money circulation (i.e., GDP/M2), shows a decline to levels never seen before: each unit of money in circulation moves just $1.4 of GDP. Or, in other words, more and more money is needed to move the same amount of GDP.