Danni Hewson AJ Bell financial analyst comments on US inflation numbers:
“The bigger than expected drop in US inflation will go a long way to calming market jitters and soothing cash strapped consumers. A sustained decrease in prices at the pump is the main factor behind today’s falling CPI number and there’s evidence that inflation may have finally reached its post-pandemic peak.
“But there’s still plenty to trouble central bankers, whose remit it is to rebalance things at the optimum 2%, and few will conclude today’s fall quashes the need for further aggressive rate hikes. Food prices continue to head in the wrong direction, as does the cost of electricity, and with the labour market still uncomfortably tight it’s impossible to discount the possibility that prices will remain elevated for months to come.
“And its things that ordinary Americans can’t do without that are still going up in price. The roofs over people’s heads are a prime example. Prices there rose by 0.5% for July and are up 5.6% over the last year, the fastest increase in more than thirty years.
“Alcohol, personal care, tobacco and education costs have all been creeping up, while prices for some of those nice to haves like airline fares and hotel rooms have fallen considerably. Prices will have to remain keen if people are going to keep splashing out on holidays and short breaks once any pent-up savings have been depleted and that initial post-covid demand has been sated. The seasonal dip is likely to be greater than normal because prices have been more expensive than people would typically expect due to fuel and re-start costs.
“Used car prices, which shot up after lockdowns when nervous workers shunned public transport and new cars were hard to come by because of supply chain issues, are now falling. But motorists wanting to upgrade and update are finding the latest models now come with a new and ‘improved’ price tag. Chip shortages have been a real headache for motor manufactures and wait times for delivery have been cited by more than a few big names as a serious concern now, and for the months to come. That said, supply side issues are gradually beginning to improve and slowing demand will help suppliers catch up, which could well end up being a mixed blessing.
“After being on tenterhooks for days investors can finally release the breath they’d been holding, at least for now. Whilst the US consumer is hugely important to multi-national companies, and today’s update is positive, other countries still have a long way to go before they begin their own descent. The UK will look at peak inflation of 9.1% with extreme envy and more than a little worry.”
