AJ Bell press comment – 13 December 2022
- CPI rose 7.1% in the year to November – the smallest increase since last December
- Falling prices at the pump helped cool inflation
- But households still feeling the pinch as the price of food and housing keeps climbing
Danni Hewson, AJ Bell financial analyst, comments on US CPI data:
“If you listened closely, you could almost hear a sigh of relief when today’s US inflation data came in a little cooler than had been expected. That’s not say prices aren’t still uncomfortably high for the US consumer or that at 6% the number isn’t 3 times higher than central bankers would like, but at least they’re going in the right direction.
“The prices at the pump, a tangible reminder of when things are really wrong, have fallen again as has the cost of medical services.
“The direction of travel will be a welcome one for members of the Federal Reserve, due to make their decision about how far to raise interest rates in just over twenty-four hours’ time. Investors have pretty much priced in a slowing of those rate hikes after four consecutive 75 basis point rises, and any change of plan at this point would likely send a pretty big shock wave through global markets.
“But despite all the positives in these figures there are still warnings signs that need heeding. Firstly, while food prices aren’t rising as fast as they have been over the past year, they are still rising. And just like here in the UK there are big discrepancies in how much pain individuals will feel once they get their basket to the till, depending on the mix of goods they’ve put into it.
“Then there’s the cost of another basic requirement, just keeping a roof over your head is costing more and that increase more than offsets the decreases in energy costs.
“Retailers hoping to lure consumers in as the Christmas season picks up have been offering significant discounts, but sales can’t last forever.
“And with a strong labour market pushing employers to pay more there are concerns that some of the inflation sloshing around won’t drain away any time soon. Service costs have crept up, and if those businesses are having to pay their staff more to provide those services, there’s not much expectation that those prices will come down quickly.
“Rate hikes have begun to do what they were designed to do and cool the economy, but it is only the beginning. Nevertheless, today’s numbers have fallen like soft rain on parched fields and global markets have blossomed accordingly.
“The prospect of slower rate hikes has strengthened both the pound and the euro against the dollar and that in turn should help cool both UK and Eurozone inflation. It feels like a turning point has been reached and while not every country is in the same place, at least there is scope for optimism.”
