InvestorQ : What is your quick take on the US inflation for September 2022 that was announced on Friday?
Riya Dwivedi made post

What is your quick take on the US inflation for September 2022 that was announced on Friday?

shrinidhi Rajan answered.
1 month ago

Here is my quick take on the US inflation number and what actually triggered the inflation number in the US for September 2022.

a) Between the peak of US inflation in June 2022 and September 2022, the inflation has surely fallen. Over the last 3 months, inflation has fallen by 90 bps from 9.1% in June 2022 to 8.2% in September 2022. However, this is against nearly 300 bps spike in the interest rates. It is food inflation and core inflation that pose a challenge.

b) Crude price has actually helped the inflation to fall as it is sharply lower on a sequential basis. Oil has fallen sharply on recession concerns and that is also evident in the gasoline prices coming down sharply in the US. However, the problem is that now the OPEC has cut supply by 2 million barrels per day (bpd) and that pressure crude prices higher.

c) However, it is not just the supply cut that is the problem with the energy basket. The real problem in energy basket is outside of crude oil and gasoline. Even if there is some stability in crude prices, the prices of gas and electricity are still on an uptrend. The Ukraine war has worsened the situation on the coal and gas front, so that is why energy inflation is still much higher than crude oil or gasoline inflation in the US.

d) Unfortunately, for the most vulnerable sections of the US society, the food is getting to be more expensive. Food inflation (especially the food at home segment) is at record levels in the US and the MOM inflation in food has been consistently high. Cereals, dairy products and vegetables; most of the high protein and high vitamin products are feeling the pinch. Food inflation at 11% is a multi-decade high and that is hitting budgets badly.

e) The other big worry is core inflation. Now, core inflation is the residual inflation in the basket after food and fuel are removed from the headline inflation. That core inflation spike has been triggered by the prices of services as well as the supply chain constraints. For example, from medical services to assistance services to vehicle services and air fares have all gone up very steeply, contributing to core inflation touching 42 year high levels of 6.66%. That was last seen during the early days of the Volcker era.