US: The potential impact of inflation on the tapering approach

In April, the headline CPI in the USA increased by 0.6% on a monthly basis and increased by 5% on an annual basis.

In April, the headline CPI in the USA increased by 0.6% on a monthly basis and increased by 5% on an annual basis. On the core inflation side, which excludes volatile items such as food and energy, monthly and annual increases of 0.7% and 3.8% are observed, respectively. Market expectations were 0.4% and 4.7% monthly and yearly in the headline CPI, and 0.4% and 3.4% in the core CPI.


When we look at the sub-items; The used car and truck index continued to rise sharply in May, up 7.3%. This increase accounted for approximately one-third of the increase in all seasonally adjusted items. The food index increased by 0.4% in May, similar to April. While the energy index remained unchanged in May, the monthly decline in gasoline prices seems to have balanced the increases in electricity and natural gas indices. On the core inflation side, which excludes food and energy, it increased by 0.7% in May after the 0.9% increase in April. Many of the same indices continued to rise, including used cars and trucks, household goods and operations, new vehicles, airline fares and clothing.


Data that could increase the weight of hawkish views on the Fed's tapering approach. However, it is necessary to see the effect of factors that can still be seen as temporary. The issue of where the reduced inflation will find balance is important, which will be above the targeted inflation. We can say that inflation is not at the “peak” point, because it will come into play in very tight supply conditions and there will be a demand effect that will occur directly with the fiscal incentive package. While the position of real interest rates is negative, loose financial conditions will accelerate the demand cycle and naturally the credit cycle, which means faster money movement will also mean the inflation effect. Therefore, we will continue to monitor the increase in inflation, albeit temporarily, and the idea of ​​starting the tapering phase, albeit slowly, may have more repercussions within the Fed. The fact that the Fed's view on inflation has not changed yet reduces the likelihood of this statement coming on June 16. On the other hand, there may be availability for the next time period.

Hibya Haber Ajansı