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LGT Navigator: Has inflation in the US peaked?

August 12, 2022

Following the decline in consumer and producer price inflation in the US, the question now arises as to whether inflation peaked in the summer and whether inflationary pressure is likely to weaken further. Initial assessments by the Federal Reserve are skeptical and an unchanged stance regarding further interest rate hikes by the Fed must be expected for the time being.

Has inflation in the US peaked?

On Wall Street, the optimism regarding a slower pace of the Fed quickly faded again and the indices had to give up some of their recent gains. The Dow Jones Industrial went out virtually unchanged at 33,336.67 points (+0.08%) and the S&P 500 closed -0.07% lower at 4,207.27 points. On the technology-heavy and interest rate-sensitive Nasdaq, the indices lost about -0.6% on Thursday.

Under pressure were particularly shares from the pharmaceutical sector. After the French Sanofi was sold off because of potential product liability lawsuits in connection with the drug “Zantac”, other stocks from the sector such as GlaxoSmithKline, Pfizer or Johnson & Johnson also came under selling pressure.

Stocks in the Asia-Pacific region trended inconsistently at the end of the week, following partly strong gains the previous day. In Tokyo, the Nikkei 225 trades around +2.5% higher and in Hong Kong, the Hang Seng Index goes into the weekend with a daily gain of around half a percent. Meanwhile, mainland China markets dipped. The Shanghai Composite and the Shenzhen Component lost about -0.25% today. 

On the bond market, the yield on ten-year US government bonds climbed to just under 2.9%, after the latest inflation data from the US had been priced in and representatives of the Federal Reserve had said that it was still too early for optimism about the further inflation trend.

US producer prices weaken more than expected

Another hopeful sign from the US in terms of inflation developments. At +9.8%, year-on-year producer prices in July rose much less sharply than in June, when an increase of +11.3% was recorded. On average, economists had expected a more moderate decline to +10.4%. At the core rate, i.e. excluding energy, producer price inflation was +7.6% last month (consensus +7.7%) after +8.4% in June. On a monthly basis, producer prices declined -0.5% in July, marking the first decline observed since April 2020 – the start of the corona pandemic.

Fed top officials see fight against inflation not yet won

San Francisco Fed President Mary Daly and her Minneapolis Federal Reserve counterpart Neel Kashkari cautioned that while the decline in US inflation in July is a welcome positive sign, the central bank is “still far from declaring victory over inflation.” He said the Fed must continue to tighten interest rates until price pressures are fully broken. Kashkari stressed he saw nothing in the July consumer price data that changes the need to raise the key rate to 3.9% by the end of the year and 4.4% by the end of 2023. Currently, the Fed's key rate is 2.25-2.5%. Chicago Fed chief Charles Evans also called inflation still “unacceptably high.”

OPEC lowers outlook for global oil demand

The Organization of Petroleum Exporting Countries (OPEC) expects global demand for crude oil this year to be lower than previously expected. In its monthly report, the Vienna-based cartel forecasts global economic growth of +3.1% this year compared with the previous assumption of +3.5%. Based on this, OPEC expects lower oil demand averaging 100 million barrels per day, down from 100.3 million previously. For next year, demand is anticipated at 102.7 million barrels per day.


Economic Indicators August 12

MEZ Country Indicator Last period
08:00 UK GDP Q2 (q/q) +0.8%
08:00 UK Industrial Production (June, m/m) +0.9%
08:45 FR Consumer Prices (July, y/y) +6.8%
09:00 ES Consumer Prices (July, y/y) +10.8%
11:00 EZ Industrial Production (June, m/m) +0.8%
16:00 US Consumer Sentiment (August) 51.5


Earnings Calender August 15

Country Company Period
GE Henkel Q2


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