US Inflation Has Dropped, Reducing Pressure On The Fed

US inflation decelerated in July by more than expected, reflecting lower energy prices, which may take some pressure off the Federal Reserve to continue aggressively hiking interest rates.​

The consumer price index increased 8.5% from a year earlier, cooling from the 9.1% June advance that was the largest in four decades, Labor Department data showed. 

The headline CPI inflation eased more than expected to +8.5%yoy (Jun-22: +9.1%yoy), below market consensus (+8.7%yoy).

Other components like costs of new vehicles and airfare charges also contributed to the easing inflation in Jul-22. In contrast, prices for other items, namely food, rents and used cars & trucks, recorded higher inflation than the previous month. Core inflation, excluding food & energy, was unchanged at +5.9%yoy, the lowest since Jan-22.

This implies the demand pressure on prices did not push inflation higher as consumers seen adjusting their spending plans. In general, the lower inflation rate in Jul-22 is a positive development, with consumers also expecting slower price increases.

Although the recent adjustment was due to supply side change, we opine the lower inflation reduces pressures on the Fed to carry out another large rate hike at the upcoming policy meeting.

“While data-dependent US Fed requires several months of data to conclude inflation and demand are easing, we believe the recent correction in gasoline prices and the global oil prices suggests the rate of inflation would ease further.

“Nevertheless, we opine the still-high inflation, and the robust job market will keep the Fed on hawkish mode and to tighten further until there is a clear sign US inflation moving closer to its longer-term target, says MIDF. 

S. Korea economic uncertainty

South Korea reported job additions for the 17th straight month in July, but the pace of job growth slowed from the previous month amid heightened economic uncertainty, data showed Wednesday. 

Although the rate is the highest since Feb-22, it is still below 3.0% and better than the pre-pandemic level.

The labour force continued to expand at +2.6%yoy (Jun-22: +2.3%yoy) for fourth-consecutive month, while employment stayed steady at +3.0%yoy in Jul-22.

South Korea’s labour market has significantly improved after being negatively impacted by the Covid-19 epidemic.

“Despite series of rate hikes by the Bank of Korea (BOK), the Jul-22 update shows the Korean job market remains resilient.

“However, the job market condition could deteriorate going forward as South Korea’s economy faces a combination of risks such as slowing growth and excessive inflation, as well as possible global slowdown amid monetary tightening by many central banks. Furthermore, more hikes by BOK would also affect the job market outlook as inflation remains above the central bank’s 2% target,” says MIDF.