There can be no talk of price stability for a long time. Products and services are still significantly more expensive compared to the previous year, just not quite as quickly. Sharply rising unit labor costs put the Fed under pressure.
When shopping, consumers continue to feel the high prices.
8.5 percent in July – the US inflation rate has eased slightly after hitting a 40-year high in June. But for what is commonly called price stability, it is still far too high. After all, people on the street feel almost every day how products and services are getting more and more expensive, just maybe not quite as quickly as a few weeks ago. In fact, despite all the talk about “peak inflation,” they still have to dig deeper into their pockets when they fill up their shopping baskets at the supermarket or their car’s tank at the pump.
Their experience stands in contrast to the hopes and forecasts of all the economists and investors who regularly speculate that the worst on the “inflation front” will soon be over and that conditions can soon be expected to normalize. Precisely those who did not see inflation coming are now predicting with a pronounced sense of implicitness that it will quickly disappear again in the coming months – including the central banks.
The inflation rate is still more than four times as high as its inflation target and the key interest rate is still miles away from a level that experts such as Mohamed El-Erian would consider neutral when looking at it objectively and would consider it appropriate for economic development. Although economic momentum has slowed in recent weeks, the American labor market is still overheating. In the past few days and weeks, American companies have created a surprising number of new jobs, unemployment is practically at a record low, the number of vacancies is high and unit wage costs are rising as strongly as they were last in the 1970s.
This mixture will in all likelihood force the American central bank to continue tightening interest rates.