– US inflation eased slightly to 8.5% in July off lower energy prices
– The dollar weakened on the news, with the rand trading almost 3% stronger
– 'Going forward I think you'll see inflation moderate further' says Kevin Lings, Chief Economist at Stanlib Asset Management
US inflation eased slightly to 8.5% in July off lower energy prices.
It hit a record high of 9.1% in June.
It's a positive sign that America's inflation rate eased for the first time in almost a year, but the world is still in deep trouble in many respects comments Bruce Whitfield.
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Whitfield asks Kevin Lings (Chief Economist, Stanlib Asset Management) where the new number puts us in the US inflation cycle.
It is a turning point in terms of the headline numbers says Lings, but there are challenges ahead for the US central bank.
I think the 9.1% will turn out to be the peak of inflation, and so this number suggests the first moderation… Going forward I think you'll see inflation moderate further.
Kevin Lings, Chief Economist – Stanlib Asset Management
The problem though is that their target is 2%, so they've got a long way to get this down from 8.5%… and along the way there are some critical areas that are not going to come down… something called shelter inflation… which is basically rental inflation, or the cost of housing.
Kevin Lings, Chief Economist – Stanlib Asset Management
Once that number's gone up it's very difficult to get under control… without the housing market going into a significant slump.
Kevin Lings, Chief Economist – Stanlib Asset Management
Does this still mean higher interest rates for longer?
The Fed was expected to announced another 75 basis point hike at its next meeting, but the inflation decrease opens an opportunity for a possible half a percent increase Lings says.
"But you're still looking at successive rate hikes… You've probably still got another 100 basis points to go from here before you're at the top of the interest rate cycle."
Lings says the development simply takes away a bit of the anxiety that has been building up in recent months, also for South Africa.
It doesn't solve the inflation problem… It'll probably only be by 2024 that you are actually at the target… and there's no doubt that our Reserve Bank pays careful attention to what the US does.
Kevin Lings, Chief Economist – Stanlib Asset Management
Our fuel inflation is similar to the US in percentage terms, so it gives us some comfort that these numbers are going to start to roll over… the rand strengthening also immediately helps us and again we have a better petrol price outlook.
Kevin Lings, Chief Economist – Stanlib Asset Management
Scroll to the top of the article to listen to Lings' analysis
This article first appeared on CapeTalk : US inflation eases 'but you're still looking at successive rate hikes'
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