WSJ "US Fight Against Inflation... The Difficult Final Hurdle"

The Wall Street Journal (WSJ) diagnosed on the 9th (local time) that although U.S. inflation is expected to show a clear slowing trend in the future, it will be very difficult to overcome the final hurdle for price stabilization.

WSJ reported that experts predict the U.S. Department of Labor will announce on the 12th that the June Consumer Price Index (CPI) will rise 3.1% compared to the same month last year. This is the lowest figure in the past two years, and if the index is announced as expected, the increase will be reduced by 0.9 percentage points compared to the previous month (4.0%).

[Image source=Reuters Yonhap News]

The core CPI, excluding food and energy, is predicted to rise 5.0%, marking the lowest level in 18 months.

Experts forecast that the core CPI will show a clear slowing trend soon, supported by declines in housing rents and used car prices. Housing costs account for 40% of the core CPI and about one-sixth of the Personal Consumption Expenditures (PCE) price index, the inflation measure preferred by the Federal Reserve (Fed). Since housing costs typically reflect with a one-year lag, the stabilization of housing rents that began in mid-last year is expected to start influencing the CPI slowdown as early as the June statistics.

The slowdown in the growth of U.S. households, which was cited as a cause of rising rents along with housing prices, and the supply of newly built apartments reaching the highest level in 40 years, also add weight to the possibility of a decline in housing costs.

Another positive sign is that used car prices, which rebounded in April and May as new car production recovered, are showing signs of declining again. Goldman Sachs projected that the core PCE price index growth rate will drop from 4.6% in May to 3.5% in December, based on the decline in used car prices and other factors.

However, WSJ predicted that if the U.S. economy shows even slight growth, the process of lowering inflation to the Fed’s target of 2% will be a difficult journey. If a recession does not occur in the U.S., high wage growth will inevitably lead to increased demand for goods and services. This can lead to job growth, and consumers who no longer fear losing their jobs may increase spending, creating a vicious cycle that fuels inflation.

The Fed, which expects about two more rounds of tightening, is also concerned that a strong labor market could continue to put upward pressure on wages.

Ricardo Trejo, a former Fed economist who runs a consulting firm in Geneva, told WSJ, "Going forward, goods prices will not return to the pre-pandemic deflationary trend."

Before the pandemic, overall inflation was very low, so goods producers had to lower prices to expand or maintain market share. However, in the current high-inflation environment, simply not raising prices is sufficient, he explained.

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