CICCresearch reportpointed out that the United States in OctoberCPI3.2% year-on-year, core CPI 4.0% year-on-year, lower than the market and our expectations.Despite medicalInsurancePrices rebounded due to statistical reasons, butgasolineThe weak growth in prices of housing, rent, second-hand cars, hotels, etc. has allowed overall inflation to still fall. In the short term, slowing inflation means that the need for the Federal Reserve to further raise interest rates decreases, hopes for a soft landing of the U.S. economy increase, investors’ risk appetite improves, and assets that have been adjusted more in the early stage are expected to rebound.But we also remind that it is not appropriate to target the United StatescurrencyThere are excessive expectations for easing, and our baseline scenario is that the Fed maintains its current policy in the first half of next year.interest ratelevel, it will turn to interest rate cuts in the second half of the year, and the first rate cut may be in September next year.
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CICC: U.S. inflation may slow down or extend rebound window
The U.S. CPI in October was 3.2% year-on-year, and the core CPI was 4.0% year-on-year, which was lower than the market and our expectations.Despite medicalInsurancePrices rebounded due to statistical reasons, but the weak growth in prices of gasoline, rent, second-hand cars, hotels, etc. allowed overall inflation to still fall. In the short term, slowing inflation means that the need for the Federal Reserve to further raise interest rates decreases, hopes for a soft landing of the U.S. economy increase, investors’ risk appetite improves, and assets that have been adjusted more in the early stage are expected to rebound.However, we also remind that it is not appropriate to have excessive expectations for U.S. monetary easing. Our baseline scenario is that the Federal Reserve maintains its current policy in the first half of next year.interest ratelevel, it will turn to interest rate cuts in the second half of the year, and the first rate cut may be in September next year.
The reasons for the slowdown in U.S. inflation in October come from several aspects: First, the automobile industryoil pricePrices fell.Although the Palestinian-Israeli conflict in early October triggered market concerns, it has so far not significantly led to a continued rise in crude oil prices. On the contrary, Brent crude oil prices fell from a high of US$96/barrel at the end of September to US$83/barrel at the beginning of November. , The retail price of gasoline in the United States has also continued to fall since late September, and has now fallen below $3.5/gallon. Less pressure on oil prices is a good thing for the economy because the risk of “stagflation” from insufficient energy supply will be reduced.
Second, rent inflation has slowed down.The growth rate of owner-equivalent rent fell back to 0.4% in October from the unexpected rebound of 0.6% in September, but the growth rate of primary residence rental remained at 0.5%. Overall, the higher-weighted “long-term rental” rents have shown stronger stickiness than expected this year. We expect rent inflation to continue to decline, but the speed may not be as fast as previous market optimism showed.
Third, the decline in prices of some core goods and services has been a drag.As supply and demand further balanced, core commodity prices fell by 0.1% month-on-month in October. Among them, second-hand car prices further fell by 0.8%, but the decline narrowed from the previous month’s 2.5%; new car prices turned negative month-on-month, and furniture, toys, computers, The price growth rate of smartphones and other products is also relatively moderate. The non-rental core services that the Fed is most concerned about also cooled down last month. Among them, the prices of hotels and air tickets, which are highly volatile, fell month-on-month.But medicalInsuranceAfter seasonally adjusted price growth, the month-on-month growth rate changed from -3.5% to an increase of 1.1% under the statistical adjustment. This means thatmedical serviceThe drag on inflation by prices has ended.
Looking forward, due to base reasons, inflation in November and December may still have a “tail hike” phenomenon.Due to the low base in the last two months of last year, assuming that the month-on-month inflation growth rate in November and December is the same as that in October, the overall CPI year-on-year growth rate may rebound to 3.3% and 3.7% respectively, and the core CPI year-on-year growth rate may rebound to 3.3% and 3.7% respectively. 4.1% and 4.2%.In addition, the seasonal adjustment factors in November and December tend to be pushed upward.QualcommInflation growth rate may also mean that the seasonally adjusted month-on-month inflation growth rate may also rebound.
But overall, the fall in inflation in October is still a positive signal. It means that the need for the Federal Reserve to further raise interest rates has decreased, and the hope of a soft landing for the U.S. economy has increased.Federal Reserve Chairman Powell said after the FOMC meeting in November that the current risks facing the Federal Reserve are two-way. The implication is that it must continue to fight inflation while also paying attention to the risks brought by high interest rates. The Fed’s goal next year is to guide the economy to a soft landing. If inflation can slow further, the Fed can remain more patient and not rush to restart interest rate increases. The Fed’s caution also means that the risk of monetary policy “going too far” decreases, and the dawn of a soft landing for the U.S. economy will be brighter.
For the market, the slowdown in inflation supports the improvement in risk appetite, and assets that have been adjusted more in the early stage may still be in the rebound window period.We pointed out in our previous report “Overseas Macro Changes Bring Trading Window Period” that the U.S. non-agricultural data in October fell short of expectations, and the manufacturing industryPMIOn the weak side, the Federal Reserve stated that it is in no rush to raise interest rates, and the U.S. Treasury Department’s bond issuance plan is “dove”. The combination of these factors has improved investors’ risk appetite, U.S. stocks rebounded, U.S. bond interest rates fell, and the U.S. dollar fell. The US inflation data released today further strengthens the above trading logic.
However, we also remind investors not to bet excessively on the Fed’s easing expectations.In our annual outlook report “Overseas Macro Outlook 2024: Meeting the Challenge of High Interest Rates”, we pointed out that benefiting from the base effect, U.S. inflation is expected to continue to decline in 2024. However, in recent years, the aging population, government intervention in the economy, and frequent geopolitical conflicts have The increase in unfavorable supply factors such as anti-globalization means that inflation will last longer and the center of U.S. inflation may rise systematically.The implication for monetary policy is that the Fed will have a harder time choosing between growth and inflation. In order to guide the economy to a soft landing next year, it may need to raiseQualcommSwelling tolerance. Under the baseline scenario, the Fed will maintain the current interest rate level in the first half of next year, and will turn to interest rate cuts in the second half of the year. The first interest rate cut may be in September. In the medium term, the Fed may raise its inflation target.
Chart 1: The year-on-year growth rate of U.S. CPI and core CPI continues to slow down
Chart 2: Overview of the breakdown of inflation growth in the United States
(Source of article: Financial Associated Press)
Source of article: Financial Associated Press
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