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Inflation Still Appears To Be Peaking, But For How Long?

By James PicernoMarket OverviewSep 23, 2021 05:28PM ET
www.investing.com/analysis/inflation-still-appears-to-be-peaking-but-for-how-long-200602858
Inflation Still Appears To Be Peaking, But For How Long?
By James Picerno   |  Sep 23, 2021 05:28PM ET
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Recent updates continue to suggest that the current surge in US inflation is cresting. The mystery is how long the peaking process will last.

In a sign of the fluid outlook for estimating the persistence of “transitory” inflation, two Fed officials this week said that the higher pricing pressure could endure for longer than previously expected. Federal Reserve Chairman Jerome Powell offered similar comments in yesterday’s press conference.

Let’s start with Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman, who are cautious on anticipating a quick and sharp decline in inflationary pressures. Bostic said “Temporary is going to be a little longer than we expected initially… Rather than it being two to three months it may be six to nine months,” he predicted in a June interview with NPR.

Bowman, speaking at a conference, said higher prices are due to congested supply chains and rising demand.

Bostic explained that “given the upside surprise in recent data points I pulled forward my projection.” As a result, he’s in the camp of policymakers who think the central bank needs to begin raising interest rates at some point in 2022.

Note, too, that the Federal Reserve yesterday raised its inflation forecast for 2021 to 4.2% at the headline level—up from June’s 3.4% estimate. The central bank also lifted its core inflation outlook for this year to 3.7% from 3.0% previously. On both counts, the forecasts are far above the Fed’s 2% inflation target.

Pricing pressure is expected to ease substantially in 2022, the Fed projections show, dropping to just above the 2% target.

Meanwhile, actual consumer price inflation reported by the government showed signs of peaking in the August numbers. The one-year trend for headline CPI eased to 5.3% and core CPI dipped to 4.0%.

CPI Inflation Chart
CPI Inflation Chart

Peeking into the near-term future via CapitalSpectator.com’s Inflation Trend Index (ITI) supports the view that pricing pressure is peaking. (ITI seeks to provide a degree of forward guidance on the directional bias of pricing activity in real time, but is not intended to be a proxy for estimating the government’s inflation indexes.) New data published since the previous ITI update (Sept. 15) still point to a mostly steady inflation trend in September that’s on track to ease in October (red line in chart below).

Inflation Trend Index
Inflation Trend Index

For a clearer review of the evolution of ITI in recent history, here’s how monthly changes in the index compare. In contrast with the previous estimate of no change for September, today’s estimate indicates a fractional increase in ITI for this month over August.

Inflation Trend Index Monthly Change
Inflation Trend Index Monthly Change

Overall, inflation still appears to be peaking, but there’s more uncertainty about how long the elevated levels will last. Fed Chairman Jerome Powell admitted as much yesterday, observing at a press conference that bottlenecks in supply chains and shortages in supplies are extending the peaking process.

“These bottleneck effects have been larger and longer-lasting than anticipated,” he said. “While these supply effects are prominent for now, they will abate. And as they do, inflation is expected to drop back toward our longer-run goal.”

Inflation Still Appears To Be Peaking, But For How Long?
 

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Inflation Still Appears To Be Peaking, But For How Long?

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Comments (8)
Ricardo Diogo
Rcd72 Sep 24, 2021 2:06AM ET
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inflation is rooted in metals , products , housing, energy, the silly liquidity fed inflates is distorting everything.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Sep 24, 2021 12:40AM ET
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Taper or No Taper, game is over.What Dr. Jerome Bubble said transitory inflation was the inflation due to 2020 low Covid base. But Dr. Bubble is aware of the stimulus lion 🦁 he is riding on. The real inflation is yet to begin when taper starts. Inflation Lion will get him sooner or later. So Dr. Bubble is more likely to act sooner in September because the lion might let him walk free if he gets off the lion sooner than later. Dr. Bubble and the Lion - will be a story in children's book on how not to do monkey tricks with the US economy
Ricardo Diogo
Rcd72 Sep 24, 2021 12:40AM ET
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you are right! but Mr Bubble either is living in the moon 🌒 or he playing the scam game.
Daniel Hodel
Daniel Hodel Sep 23, 2021 11:35PM ET
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Remember when Trump wanted negative interest rates? Good times! As Japan how that works out.
Jokers R Us
Jokers R Us Sep 23, 2021 9:44PM ET
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Forever
Ken Valla
Ken Valla Sep 23, 2021 9:27PM ET
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chip buyers are paying $100 for a $4 chip and aluminum buyers paying 40% more than typical and they are passing this onto customers. It wont go back. Do you know a company that decides to charge less?
James Andrews
James Andrews Sep 23, 2021 7:12PM ET
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As long as fools vote for socialism.
Daniel Hodel
Daniel Hodel Sep 23, 2021 7:12PM ET
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Permanent tax breaks for the wealthy, and 3 year tax breakes for the middle class. Trump’s government bailed out failed businesses on the taxpayer’s dime, while wanting negative interest rates. Ask Japan how the negative interest rates have worked out. 22 year recession.
Daniel Hodel
Daniel Hodel Sep 23, 2021 7:12PM ET
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Permanent tax breaks for the wealthy, and 3 year tax breakes for the middle class. Trump’s government bailed out failed businesses on the taxpayer’s dime, while wanting negative interest rates. Ask Japan how the negative interest rates have worked out. 22 year recession. You red hats must love socialism for the wealthy. They then replace you with cheap labor from immigrants. Look at Freshmark as an example.
Stephen Fa
Stephen Fa Sep 23, 2021 6:24PM ET
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Fed and US ponzi $USD
SLM McKinney
SLM McKinney Sep 23, 2021 11:04AM ET
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