US – Inflation

Inflation in the US accelerated further to 9.1% in June from 8.6% in May 2022, beating consensus expectation of 8.8%. This is the highest reading in almost 40 years.

The high inflation number is likely caused by supply factors. Core inflation, which excludes food and energy prices, receded to 5.9%, meaning the high interest rates made by the Fed has cooled demand pressure.

The high inflation was propelled by energy prices which surged by 41.6% y/y, mainly due to higher gasoline price (59.9% y/y), and fuel oil (98.5% y/y). This coincided with the higher global oil price which was averaging around US$110/barrel, 46.6% higher relative to the previous year’s price.

The high energy prices were also affecting food prices, which jumped to 10.4% y/y, where big hikes were seen in the prices of cereal and bakery products, and dairy products.

Gasoline prices in the US as of the first two weeks of July 2022 were also higher, averaging at US$4.71/gallon, which is 50.6% higher compared to July 2021’s average.

World oil prices have now declined to below the US$100/barrel threshold due to pessimism in the global economic outlook. This means retail gasoline price should be cheaper from now on which means inflation could recede soon.

The next FOMC meeting is scheduled on 26–27 July, where we expect another 75bps rate hike, pushing the fed funds rate to 2.25%–2.50%. We expect another 50bps rate hike in September 2022, and another 25bps in either November or December 2022, bringing the fed funds rate to 3.00%–3.25% by end of this year.

Source: AmInvest Research - 14 Jul 2022