Inflation is going down practically everywhere in the world. The price pressures in the energy markets have subsided compared to other not too distant times, the commodity markets have absorbed the effects of the endless Russia-Ukraine war, a factor that initially collapsed them.
Indeed, virtually all forward-looking indicators point to (at least) stability, or a full return to global economic growth.
If everything is going so well, why do you feel so bad? This is what many analysts around the world are wondering about the current situation.
If inflation is going down, why are central banks threatening more interest rate hikes, especially in the industrialized world?
The same central banks have pointed out the cause and have explained the reason for their present and future actions, but it seems that the world insists on not listening to them, and for this reason the bankers are increasingly emphatic.
Inflation is going down, important advances have been made by containing it in the first instance and now, controlling the trajectory of prices. But what has been achieved so far is insufficient, nothing more and nothing less than the central bankers themselves say.
Positive figures, negative expectations
All the figures (or almost all show) day by day that there is progress in the world in the fight against inflation. Especially the industrialized economies have managed to contain the most impressive regrowth not seen in decades, but it is insufficient.
It is enough to see what happened with the recent figures and the actions of central banks.
Recent data provides evidence that the US labor market is becoming more balanced.
Nonfarm payroll employment rose 209,000 jobs in June, surprising to the downside of consensus estimates for the first time in 15 months.
For its part, the stubborn imbalance of supply and demand also appears to be easing, with the JOLTS report for May showing that job openings in that economy fell just shy of 10 million, to a total of 9.82. million, slightly below consensus.
Likewise, the ratio of job offers per unemployed fell from 1.82 to 1.61, still well above its pre-pandemic average, but its lowest level since November 2021.
However, progress continues to be frustratingly slow, as is recognized by locals and strangers.
For example, the June payroll number of 209,000 positions (average of 244,000 for the second quarter) is still too strong to be consistent with a significant easing in the labor market.
On the household side of the report, the unemployment rate fell 0.1 points since Maysettling at 3.6 percent, with household employment swinging to a solid gain of 273 thousand jobs.
Meanwhile, the latest readings for average hourly earnings (AHE) show wage growth settled to around 0.4 percent during the second quarter, 0.1 percentage points above expectations; the 0.3 percent pace in the first quarter is significantly faster than the values considered consistent with the 2 percent inflation target.
Taken together, the wages and employment data show payroll revenues accelerating 0.8 percent from 0.3 percent in June, suggesting that the self-reinforcing dynamics between employment and wage earnings, revenues, and expenses continued. in June.
With these dynamics still intact, the trajectory of inflation is not expected to continue downward in the long term, unless central banks continue to act.
Core inflation is the key
Similarly, central banks have tried to explain to the market how the most relevant indicator for their measurements and decision-making that they carry out is core inflation, rather than headline inflation.
As we know, this type of inflation does not consider volatile prices and products, which tend to modify general prices temporarily.
Core inflation is also falling, but more slowly and, in fact, in several cases eventual rebounds are observed, a luxury that the planet’s central bankers cannot afford.
The trajectory is practically the same throughout the planet, which means that non-volatile prices and productive sectors have reacted less or less quickly to the anti-inflationary measures of the world’s central banks.
Core inflation is still too high; therefore the monetary institutions have no choice but to continue acting.
“Inflation goes up the elevator and down the ladder”
In the markets it is said that inflation is a phenomenon that generally occurs in an accelerated manner, hence the risk that it could reach other instances such as hyperinflation.
But, its abatement is more difficult, especially since generally monetary measures must be taken that have other implications.
It is said that inflation is, has been and will be an exclusively monetary phenomenon, but controlling it includes measures that go beyond the monetary.
This inflationary period has made it very clear that the previous theory came true again.
Inflation derived from monetary conditions implemented by the Covid-19 pandemic. However, controlling it includes measures that go beyond the monetary, precisely for this reason they must be applied with more care so as not to distort other indicators or even cause “economic chaos”.
Inflation went up the elevator, and now it’s down the stairs.
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