US inflation is falling faster than expected

US inflation fell much faster than initially thought. Inflation eased to 7.1 percent in November from 7.7 percent in October. But, as Rabo Research’s macro-economist for the US, Phillip Marie, insists, inflation is still high.

He says the reason it’s lower now is because of a number of surprises in recent months. “On the upside, so analysts are generally more cautious when expecting a downturn,” Mary says. But it has gone faster than many expected. So it’s going in the right direction.’

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Core inflation — inflation that doesn’t factor in energy and food prices — has fallen, according to Mary. “Tougher than expected,” he continues. It has increased from 6.3 percent to 6.0 percent. That’s still high, and it means it will be a long time before we reach the 2 percent the Fed wants to reach. But the most important thing is that things are improving in a broad sense.’

logical consequence

So Mary thinks it’s only logical that the stock markets perform positively. “What you’re seeing is expectations of further rate hikes from the central bank being revised downward next year,” he continues. ‘That’s positive for equities, you can see it in the AEX but not the S&P500.’

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Although expectations for next year have been revised down, Mary doesn’t think the lower inflation rate will have an immediate effect on the numbers the central bank will announce tomorrow. “We are already coming back from 75 basis points last time to 50 basis points this time and I think that is enough for now. This is just a statement. I think the central bank should wait till the next meeting to recommend a 25 basis points rate hike.

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While the central bank will present a new interest rate decision tomorrow, its European counterpart – the ECB – will present an interest rate decision on Thursday. But that too will not be affected to a great extent. Marie: ‘Europe is certainly more sensitive to Russia-related energy issues, so in that respect the ECB should stick to the expected 50 basis points.’