Companies are desperately looking for staff. This drives up wages and raises concerns about a wage-price spiral in which higher prices and wages reinforce each other.
(Photo: AP)
New York, Frankfurt Inflation in the US is proving to be a stubborn phenomenon, making another significant rate hike by the US Federal Reserve more likely. The inflation rate fell slightly in September and was 8.2 percent after 8.3 percent in August. However, economists had expected a somewhat sharper decline to 8.1 percent in September. Also disappointing: Compared to the previous month, prices rose by 0.4 percent, compared to an increase of only 0.2 percent.
The fear of further significant interest rate increases is also exacerbated by the so-called core inflation, which excludes the strongly fluctuating prices for energy and food: It was 6.6 percent in September after 6.3 percent in August. The current numbers are the highest in 40 years.
“The data confirm the fears of US Federal Reserve officials that inflation is more persistent than previously expected,” says Commerzbank economist Bernd Weidensteiner. He assumes that US inflation will fall only slightly in the coming months, even if energy prices should calm down.
Fed signals further sharp rate hikes
The Fed had signaled further drastic interest rate hikes even before the publication of the inflation figures. This is indicated by the minutes of their September meeting. It says: “Many participants emphasized that the costs of taking too weak an approach probably outweigh the costs of taking too strong an approach.” The central bankers were therefore unanimous that they must raise interest rates to a level that slows down the economy more.
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Investment bank Goldman Sachs expects the Fed to raise interest rates again by 0.75 percentage points at its November 2 meeting. After that, she expects further rate hikes of 0.5 percentage points in December and a quarter of a percentage point in February. This would increase the rates to 4.5 to 4.75 percent. This is also roughly in line with Fed members’ predictions, which last averaged it to peak in 2023 at 4.6 percent.
The inflation data sent the stock markets on a rollercoaster ride. Shortly after the figures were published, the Dax turned negative from a plus of around 1.4 percent and lost almost 300 points. The US markets also started trading with significant losses. Prices also came under pressure on the bond market, and the yield on two-year US government bonds rose to over 4.5 percent. Until shortly before the end of trading in Europe, the Dax turned slightly positive again, and the US stock exchanges were also able to recover somewhat over the course of the year.
US economist Mohamed El-Erian called the inflation numbers “ugly” on Twitter. They were once again higher than expected. He sees this as “bad news” for the Fed and markets. But this is even more painful “for the economy and especially for the most vulnerable sections of society”.
Inflation ahead of congressional elections top concern
High inflation is currently the key issue in the US ahead of the congressional elections in early November. In a recent survey by Monmouth University, 82 percent of voters surveyed said that price increases were an extremely or very important issue for them.
This puts it first – ahead of crime. For US President Joe Biden, the latest inflation figures are the second setback within a week: the oil cartel Opec plus recently announced that it would produce significantly less oil from November. This means higher world market prices and thus also higher gasoline prices in the USA.
On the other hand, the higher-than-expected inflation comes in handy for the Republicans during the election campaign. Because they are already exploiting the higher prices for food and gasoline as an argument against Biden. They accuse the President of unnecessarily stimulating the economy with his stimulus packages and now not doing enough to fight inflation.
Wall Street expert Koch: The desired cooling of the US economy has occurred
Inflation is also one of the dominant political issues in Europe. At the annual conference of the International Monetary Fund (IMF), Federal Finance Minister Christian Lindner (FDP) and Bundesbank President Joachim Nagel announced joint action to combat persistently high inflation. The Bundesbank is anticipating inflation of over eight percent this year. And in the coming year – contrary to what was recently hoped for – it may not be much better. “I expect a seven before the comma,” said Nagel.
In these difficult times, financial and monetary policy must work “hand in hand”, stressed Lindner. The actions of finance ministers and central bank governors in the fight against inflation and economic weakness is one of the central topics at the IMF annual conference. Governments and central banks have to step on the brakes in order to curb persistently high inflation – but this is also weakening the economy. From the point of view of Lindner and Nagel, however, this has to be accepted. “Fighting inflation is our top priority,” said Lindner. After all, inflation is “the greatest threat to our economic foundation”. Nagel emphasized that the economic slowdown should be as slight and as short as possible. Permanently high inflation is “the greatest destroyer of wealth”.
From Nagel’s point of view, the European Central Bank (ECB) should raise interest rates sharply at its upcoming meeting. Although the size of the interest rate increases depends on the current data, Nagel said at a joint press conference with Federal Finance Minister Lindner at the autumn conference of the International Monetary Fund (IMF) in Washington. The latest data is clear and clearly points in the direction of a “robust rate move,” he added. Getting inflation under control is the top priority. The next ECB interest rate meeting is on October 27th.
More: Inflation in the euro area rises to a new record – three countries over 22 percent