In the US, the consumer price index rose 0.8% in November on a seasonally adjusted basis after rising 0.9% in October. In the last 12 months, the all items index has increased by 6.8% before seasonally adjusted. The seasonally adjusted monthly increase in all items was the result of broad increases in most components, similar to the previous month. With headline inflation seeing its highest levels since 1982, we have more reason to worry about persistent, sticky inflation, both historically and overall. The fact that the increase in inflation is not limited to the usual suspects shows that the decrease in inflation will not be sufficient in the stage after the periodic transitions are over.

 

If we look at the sub-items; Indexes for gasoline, shelter, food, used cars and trucks, and new vehicles are among the biggest contributors. The energy index rose 3.5% in November, driven by the 6.1% rise in gasoline prices and the rise in other main energy component indices. The food index rose 0.7%. Housing rents rose 0.4% in November, after rising 0.4% in October. The index for all items excluding food and energy increased by 0.5% in November after increasing 0.6% in October. Household goods and operations, clothing, health, restaurant, hotels and airline price indices were also among the rising ones. Motor vehicle insurance, entertainment and communications indices all declined in November.

 

The all items index rose 6.8% in the 12-month period ending in October, the largest 12-month increase since the period ended June 1982. While the index of all items except food and energy increased by 4.9% in the last 12 months, the energy index increased by 33.3% and the food index increased by 6.1% compared to the previous year. These changes are the largest 12-month increases in at least 13 years in the respective series.

 

We see that inflation should be handled on a broader level at the point of impact and reaction. Although the temporary needs and supply problems that emerged with the pandemic period form the general lines, a significant inflation fluctuation is seen for the short term with the excessively deteriorated expectations. As a matter of fact, there are changes observed in almost many goods and services groups in terms of general increases. At this point, the rigidity of services inflation should not be ignored, especially while the risks of the pandemic continue. If the new variant effect is reflected in the economy, the effect on services inflation may be more permanent, so it may be necessary to stay on track.

 

It is no longer an unexpected phenomenon that the Fed moves faster in reducing asset purchases. They will raise this bar on December 15, but it is unclear whether they will raise the $15 billion level to 20-30 or what bar. This is important in this respect, how soon will the Fed raise interest rates? The degree of acceleration will also give insight into the Fed's priority to lose control in managing inflation expectations. Ending asset purchases in a period like March 2022, followed by an rate hike not too late, seems like a logical cycle. There will be significant changes in the inflation directive in the FOMC statement. We can evaluate the possibility of the Fed's open-ended policy approach to become more hawkish and increase the rate hike schedule depending on the situation.

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