Growing Inflation Concerns: When Will They Ease?

[Asia Economy Reporter Song Hwajeong] Concerns over rising inflation are growing. Experts predict that the inflation trend will gradually stabilize after peaking at the end of the year.

Recently, the U.S. Producer Price Index (PPI) for October rose 8.6% year-on-year, marking the highest level since data collection began, while the U.S. Consumer Price Index (CPI) for October also increased by 6.2%, reaching the highest point in 31 years. China's October Producer Price Index also rose 13.5%, setting a new record high.

Kim Jungwon, head of the investment strategy team at Hyundai Motor Securities, analyzed, "The CPI showed a significant increase, rising 0.9% month-on-month and greatly exceeding market expectations, intensifying concerns about demand contraction and the full-scale tightening due to inflation. The recent sharp rise in prices is mainly due to the energy crisis. With energy prices rising 4.8% in October and the increased demand for energy for winter heating, high energy prices are expected to persist, which is a burden on inflation."

Jeon Gyuyeon, a researcher at Hana Financial Investment, explained, "Core consumer prices excluding the highly volatile food and energy prices rose 4.6% year-on-year, a steeper increase than market expectations. The sharp rise in major energy prices, including international oil prices, has increased the contribution from the energy sector." He added, "Even excluding the energy sector, inflation is spreading broadly across major items such as new and used car prices and housing costs, making concerns about inflation inevitable."

In particular, the fact that inflation continues to exceed market expectations makes forecasting increasingly difficult, adding to the burden. Byun Junho, a researcher at Heungkuk Securities, said, "There is already a consensus that inflation indicators will remain high until the first quarter of next year. The issue is whether inflation will continue to exceed market participants' expectations and increase the burden. If inflation indicators come out high but meet or fall below market expectations, inflation concerns could be alleviated in advance on a perceptual level."

Inflation is expected to gradually stabilize after peaking at the end of the year. Immediately after the October CPI release, which exceeded expectations, U.S. President Joe Biden issued an emergency statement directing measures to bring down inflation. Additionally, the sharp rise in freight indices, a major cause of inflation, and economic lockdowns in Southeast Asia are gradually easing. Kim said, "The Baltic Dry Index (BDI), a leading indicator of inflation, has fallen nearly 20% from this year's peak, indicating that import-driven inflation has ended. The recent rebound in mobility indices in major Southeast Asian countries also raises expectations for easing supply bottlenecks."

Jeon added, "If transportation costs ease after reaching their peak and supply chain disruptions gradually resolve from the first half of next year, supply-side inflationary pressures will also weaken. Although a higher inflation level than in the past is inevitable, if the rate of inflation slows down in the first half of next year, the Federal Reserve's burden of early rate hikes will also decrease."

Byun said, "Considering the willingness of major countries to respond to inflation policies, the decline in freight indices and energy prices, the possibility of easing semiconductor supply for automobiles, and the fact that inflation indicators have exceeded expectations for five consecutive quarters, rather than focusing on the October inflation shock, an investment strategy that anticipates the formation of inflation peaks at the end of the year and early next year based on major countries' policy responses and their outcomes seems necessary."

This content was produced with the assistance of AI translation services.