ASI comments on US inflation data

Aberdeen Standard Investments’ Deputy Chief Economist James McCann reacts to today’s US inflation data.

James McCann, Deputy Chief Economist at Aberdeen Standard Investments, comments:

“Nothing here is going to change the Fed’s view on the outlook for prices or policy just yet. While the monthly reading was a little weaker than expected, inflation remains troublingly strong, even if it is not exploding like it did earlier in the year. That means it needs monitoring, and the Fed isn’t going to take too much from today’s data.

“What is interesting is that we saw prices fall in some of those sectors which have been most troublesome from an inflation perspective of late, with air fares and used car prices dipping. Volatility remains unusually high in the CPI basket, reflecting continued disruptions from the pandemic.

“Powell has heavily defended the Fed’s view that inflation is temporary. The data over the next six months is going to really test that theory. If we continue to see further step downs in inflation over the next six months that should ease the pressure on the Fed to quickly follow tapering with interest rate rises.

“But it is going to be really important for the market to put aside those factors that have made inflation so volatile, like used car prices or the reopening of the economy more broadly. Removing them should focus minds on whether inflation is indeed temporary or something altogether more sustained, and worrying.”

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