According to house economist Han de Jong, the rapidly changing inflation picture in the US is causing remarkable movements in the economy. For example, the dollar fell by three cents against the euro this week, the US stock market rose by about two percent and capital market interest rates fell by 30 basis points.
Although America has been struggling with a major inflation problem for some time now, according to De Jong it is increasingly looking like it will resolve ‘silently’. “The Federal Reserve doesn’t have to raise interest rates much further, so that gives some certainty. In this way, the Americans may get the inflation problem under control without a nasty recession.’
More enthusiasm
If that were indeed successful, it would be a ‘quite unique development’, according to De Jong. One that is also good news for the stock market. ‘The fact that there will not be a nasty recession and interest rates will not have to rise much further is good for the stock market, which also leads to a fall in capital market interest rates.’
Due to this favorable outlook, the dollar is currently weakening, something that happens more often when there is ‘more enthusiasm’ in the world, according to De Jong. ‘Because the dollar can be supported by high US interest rates, but sometimes the dollar is also supported because people are afraid. When people become less afraid, you often see the dollar weaken a bit.’
Import prices
There is a good chance that US inflation will continue to fall in the near future. According to De Jong, food prices will continue to fall, rent inflation has passed its peak and inflation has completely disappeared from producer prices. That all gives hope. “And the expectation is that there will be a 6 percent drop in the prices of imported goods today, and that will also push consumer inflation figures further down in the coming months.”
According to the economist, the fact that the initiated fall in inflation will turn into a situation of negative inflation, or deflation, is not something we should fear for the time being. Nor should we lose sleep over the drop in import prices. ‘They often fall, import and export prices are much more volatile than consumer prices. That is not going to translate into deflation in the foreseeable future.’
Europe
Although Europe often follows the United States in terms of inflation development, the inflation problem in Europe is really ‘a degree worse’ at the moment, according to De Jong. ‘Inflation started later for us and we had to deal with the war and sharply increased gas prices. I think we will eventually follow America’s example, but there is a considerable time difference between them.’
