iconiifl-logo-icon 1
IIFL

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

  • Open Demat with exclusive Advice & Services
  • Get a dedicated Relationship Manager to help you grow your wealth
  • Exclusive advisory on 20+ trading & wealth-based investment options
  • One tap Investments, Automated trading & much more
  • Minimum 1 lakh margin required
sidebar image

US November inflation tapers to 7.1% on sustained hawkishness

14 Dec 2022 , 09:34 AM

Interestingly, this inflation data comes in exactly a day ahead of the last Fed meeting of 2022, which will conclude on 14th December. There are already indications from the Fed (including from Jerome Powell) that the Fed would look to tone down the aggression from December itself. It may be recollected that between May 2022 and November 2022, the Fed had hiked rates by 75 bps on 4 occasions in succession. Since March 2022, the Fed rates are up a full 375 basis points from the range of 0.00%-0.25% to 3.75%-4.00%.

In October 2022, consumer inflation had fallen below 8% for the first time since February. Now November inflation is lower by another 60 bps at 7.1%. Consumer Inflation had touched a peak of 9.1% in June 2022 and then tapered to 8.5%, 8.4%, 8.2% and 7.7% between July and October. November has seen a rather sharp fall in the consumer inflation to 7.1%. If one looks at the break-up of consumer inflation in November, there has been a perceptible fall in food inflation and energy inflation, even as lower core inflation stays persistent around the 6% mark. The chart captures consumer inflation trend in the US. The blue line shows headline inflation while red line captures core inflation trend over 1 year.


Chart Source: US Bureau of Labour Statistics

Broadly, the yoy inflation was lower across all the 3 major categories viz. food inflation, energy inflation and core inflation; although it has been most pronounced in energy inflation. For instance, Food inflation fell by 30 bps from 10.9% in October 2022 to 10.6% in November 2022. During the same period, energy inflation fell 450 basis points from 17.6% to 13.1%. Even core inflation tapered by 30 bps from 6.3% to 6.0% over last month. Over the last 2 months, core inflation has fallen by 60 basis points, which is a good sign.

US consumer inflation falls 200 bps from June peak

Headline consumer inflation in the US has fallen 200 basis points from the peak of June 2022. However, the impact of cumulative rate hikes will translate into a quicker fall in consumer inflation in the coming months. In November, all 3 heads of inflation are lower. However, food inflation and core inflation continue to remain elevated by historical levels, due to supply chain bottlenecks.

While energy prices are sharply lower in the last 6 months, the concern is that the tapering of energy inflation is more due to recession fears than a genuine fall in price. There are two major risks to energy inflation. Firstly, OPEC will try and keep Brent Crude prices in the range of $90-$100/bbl, so more supply cuts are likely. Secondly, EU sanctions have kicked in on Russia, so it will all depend on how Europe manages the oil and energy gap?

Category Nov 2022 (YOY) Category Nov 2022 (YOY)
Food Inflation 10.60% Core Inflation 6.00%
Food at home 12.00% Commodities less food and energy 3.70%
  • Cereals and bakery products
16.40%
  • Apparel
3.60%
  • Meats, poultry, fish, and eggs
6.80%
  • New vehicles
7.20%
  • Dairy and related products
16.40%
  • Used cars and trucks
-3.30%
  • Fruits and vegetables
9.70%
  • Medical care commodities
3.10%
  • Non-alcoholic beverages
13.20%
  • Alcoholic beverages
5.50%
  • Other food at home
13.90%
  • Tobacco and smoking products
6.30%
Food away from home 8.50% Services less energy services 6.80%
  • Full service meals and snacks
9.00% Shelter 7.10%
  • Limited service meals and snacks
6.70%
  • Rent of primary residence
7.90%
Energy Inflation 13.10%
  • Owners’ equivalent rent
7.10%
Energy commodities 12.20% Medical Care Services 4.40%
  • Fuel oil
65.70%
  • Physician Services
1.50%
  • Gasoline (all types)
10.10%
  • Hospital Services
2.90%
Energy services 14.20% Transport Services 14.20%
  • Electricity
13.70%
  • Motor vehicle Maintenance
11.70%
  • Natural gas (piped)
15.50%
  • Motor vehicle insurance
13.40%
Headline Consumer Inflation 7.10%
  • Airline Fare
36.00%

Data Source: US Bureau of Labour Statistics

There are a few broad trends emerging. Firstly, food inflation has fallen on a yoy basis, but remains 0.5% higher on a sequential basis. In the food basket, vegetables and fresh fruits saw lower inflation while high protein items like meat and dairy products saw a spike in inflation. Food basket is still subject to supply side constraints. Secondly, under the energy category, the fall in energy inflation has been driven by the sharp fall in gasoline prices and natural gas. Lastly, core inflation has tapered, but the pressure is still coming from fuel related services like energy services, airline fares and transport related services.

High frequency inflation back to August 2022 levels

The US Bureau of Labour Statistics (BLS) reports inflation on a yoy basis, as well as on a MOM high frequency basis. The chart below captures the trend of MOM inflation over last one year. After touching a high of 1.3% in June, it fell to 0.0% in July 2022. While MOM inflation spiked in September and October, it has moderated in the month of November 2022 to 0.1% on a seasonally adjusted basis.

Chart Source: US Bureau of Labour Statistics

Here are key takeaways from the MOM inflation data for November 2022.

  1. MOM food inflation increased 0.5% with 4 out of 6 heads of groceries up. Inflation was higher for fruits, vegetables, cereals and bakery but lower for meat and poultry.
  2. Energy index fell -1.6% MOM in November after bouncing in October. Gasoline and natural gas were lower on MOM basis while fuel and electricity were higher.
  3. Core inflation rose 0.2% MOM in November 2022. Pressure is coming from rent and shelter and fuel dependent services, while cost of medical care tapered.

 
Strong case for Fed to go slow on rate hikes

Ahead of the FOMC statement expected to be announced on 14th December, it almost looks like a fait accompli that the Fed would restrain itself to 50 bps rate hike. That is logical after 4 rounds of 75 bps each. There are several factors that could trigger a tapering of the hawkishness. Firstly, headline inflation is down 200 bps from the June 2022 peak.

Secondly, after 2 quarters of GDP contraction, the GDP expanded in Q3-2022. The US would not want to miss out on this growth momentum. In December 2022, Fed will have incentive to hit the pause button and restrict hikes to just 50 bps. Anything lower would be icing on the cake for the markets. With Fed rates likely at 4.5% after the December hike, the terminal rate may still be about 100 bps away. Rate hikes are not yet over, for now.

How will the US inflation data impact India? RBI has already tapered its rate hike from 50 bps to 35 bps in December. Fed has indicated that it would restrict rate hikes in December to 50 bps. However there is lack of clarity on terminal rates in the US and in India. But one thing is clear. For the US and India, the relentless and single-minded pursuit of inflation control is over. Now, the focus will be equally on growth too. For India, the immediate positive takeaway of a change of heart at the Fed is that export constraints faced by India should start to ease. That is the good news!

Related Tags

  • FED
  • Federal reserve
  • interest rate
  • Rate hike
  • US inflation
sidebar mobile

BLOGS AND PERSONAL FINANCE

Images
29 Mar 2024   |   10:14 AM
Images
28 Mar 2024   |   03:36 PM
Images
28 Mar 2024   |   03:01 PM
Images
28 Mar 2024   |   01:21 PM
Read More

Invest Right News

26 Mar 2024   |   02:39 PM
26 Mar 2024   |   02:31 PM
26 Mar 2024   |   02:26 PM
Read More
Knowledge Centerplus
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Knowledge Centerplus

Follow us on

facebooktwitterrssyoutubeinstagramlinkedin

2024, IIFL Securities Ltd. All Rights Reserved

ATTENTION INVESTORS
  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

RISK DISCLOSURE ON DERIVATIVES
  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

plus
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.