The new US inflation data is in line with economists’ expectations, who also assumed an inflation rate of 6.5%. Core inflation, which excludes food and energy prices, also came in at 5.7%. The lower inflation is mainly due to the decline in energy prices, such as those of petrol. On the other hand, electricity and gas have become more expensive than the previous year. The inflation rate in the US has been declining for months, BNR in-house economist Han de Jong points out. This is the sixth consecutive month that the inflation rate has dropped. This is good news.’
Despite lower inflation, Wall Street has not reacted positively. Investors are now hoping that the US central bank will have to raise interest rates less this year to fight inflation. But they don’t seem sure about that. Electricity has become even more expensive than in November, just like gas. Food also kept getting more expensive.
De Jong therefore expects interest rates to rise further. “The expectation is that they will continue to increase it. Economists are debating between a quarter of a percentage point and a half percentage point, but Fed Chief Jerome Powell has already said they want to keep going until “the job is done.” Interest rates will certainly continue to rise, I would bet on half a percentage point.’