The December CPI, which will be announced in the middle of this week, is important in terms of rate hikes and balance sheet intervention, as we follow the Fed's aggressive behavior in tightening. Although output growth and declining prices have absorbed some cost pressure recently, the supply shortage is still increasing the price pressure, albeit with a milder slope. Consensus forecasts may point to a slightly softer rise. We will probably see a more moderate course on the demand side with the reduction of front-loaded effects. Global supply shortages and cost pressures originating from direct inputs will cause inflation to be felt high. When we look at the market expectations, it is seen that the CPI is expected to increase by 0.4% to 7% annually in December.
The main causes of inflation are increased demand for goods and congested supply chains that cause a supply that cannot match. With an accelerating inflation momentum in November, we observed 6.8%, the highest rates since 1982. The overall effect indicates that the price pressures have eluded the temporary effect of a few commodity categories and carry some risks that may become permanent. Within the Fed, this view has gained more dominance. Service sector prices are just as rigid as commodity inflation, and this is partly due to Omicron. While housing and rent costs feed inflation, we think that the moderation in energy is related to periodic volatility. The trend of the food and energy exclusion criterion is also important here, as core CPI is expected to stabilize above 5%, and this has the potential to amplify the compelling effects of overall goods and services inflation.
The strained situation of individual consumers leads to a spiral of wage inflation. Wage inflation also contributes to overall inflation. Now, it is necessary to look at wage inflation from this point of view; As the economy and industries open up, resignations from temporary low-paying service positions increase and they return to their core jobs. With the demand for a real wage increase against inflation, firms pay higher wages to fill job positions. Consumers, who feel the increase in real income and the effect of permanent income, continue to demand as well as increasing firm costs affect the price of goods and services sold. When the relationship between wages and price breaks against disposable income, aggregate demand will also decrease.
When we look at the phenomenon of potentially earlier rate hikes after the FOMC minutes are released, we will be paying attention to the momentum of inflation and the items that created it. In this respect, the spillover effect is very important within the framework of general trends. If we consider the hints of interest rates to normalize potentially faster than expected, possibly starting from early March; The signs of CPI and PPI will shape the expectations here. We still consider the May meeting to be reasonable in terms of the timing of the rate hike, so if there is an interest rate action in March, we calculate that the Fed's steps will move faster than what is currently priced in. Any flare-up in the ongoing COVID-19 conditions during the spread of the Omicron variant will be a downside restraint in the economy.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı