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Has Inflation Already Reached Its Highest Peak?

Pico de inflación

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A NEW PEAK in inflation breaks records not seen in the past 41 years and tightens to 9.1 % y/y in June, according to data from the Bureau of Labor Statistics. This month’s rise eclipsed May’s 8.6% figure, meaning the U.S. has been unable to reduce its inflation.

Gasoline prices rose above all categories at 11.2% in June. In addition, energy prices have increased by 60% in the last twelve months, strongly impacting the cost of living.

The inflation report comes as a shock to the financial markets, which are fearfully anticipating a loss of consumer confidence, which could trigger a chronic inflation problem in the United States.

The situation puts pressure on the Federal Reserve (FED), the body in charge of controlling inflation, as it will have to raise interest rates further, which increases the cost of credit in the economy.

In June, the FED made the highest rate hike seen in 28 years, and indicated that it had intentions to control the price spikes. For some analysts, the Central Bank’s decision has been interpreted as a willingness to recess the economy in order to control rising prices.

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Americans will have to get used to more expensive goods and services

Black Rock board vice chairman Philipp Hildebrand recently stated that “we are seeing the peak in headline inflation, what is interesting is what is going to happen with core inflation.” That is, soon fuel, energy, and food price increases will stop impacting Americans’ pocketbooks, and even if headline inflation is contained, inflation impacts on other consumer goods will continue to be felt, at least through December, the mutual fund anticipates.

Americans will continue to live with higher-than-normal inflation, and at least through the end of 2023 the economy will see price increases on the order of 4%. It remains to be seen how long this market volatility and uncertainty era will last.

According to Black Rock, markets are preparing for the end of what they call “the great moderation,” a four-decade period of pronounced growth and low inflation.

inflation
Although some analysts believe that the economy has reached its inflation peak, increases will continue to be pronounced until the end of the year (Image: EFE).

Apparently, all that is behind us, and the world is in for a transformative time when economic cycles will be shorter and more volatile. The Fed used to be able to stimulate economic growth while controlling inflation, but now, for Black Rock investors, this phenomenon is not likely to happen again for a long time.

The economic and social effects of the pandemic, along with Russia’s invasion of Ukraine, the energy transition and the transformation of supply chains, have made the world a more uncertain place, where the abundance of the past decades will not be guaranteed in the future.

Europe is already facing gas and oil shortages. The risk of blackouts and recession as a result of an energy crisis has become latent. Apart from an economic crisis, European countries have to deal with a conflict at their eastern gates, where the young democracy in Ukraine has been forced to defend its sovereignty from an autocratic Russia, which by the vagaries of history, is the second nuclear power and holds the key to the European energy tap.

In America, the overflowing public spending and monetary issuance turned consumption, financial markets, housing prices, cars, and fuel, among other goods and services, upside down. With an overstimulated demand, but a supply limited in part by China’s zero COVID-19 policy, the war in Ukraine came as a shock to the United States, which today faces an unfamiliar political and economic context.

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