The inflation rate in America has fallen for the seventh month in a row. Macroeconomist Edin Mujagic calls that “welcome news” after last year’s increases. Still, it is important not to celebrate too early and to keep an eye on the monthly development, says Mujagic: ‘We have now entered a slow-motion inflation.’
The drop in inflation is not much, according to Mujagic, but it is a good sign that the downward trend is continuing. At the same time, the monthly developments show a different picture. ‘We saw a decrease in December last year, but in January it was just half a percentage point higher. That is ultimately a considerable increase on a monthly basis,’ explains the macro economist.
‘sticky inflation’
If that trend continues, according to Mujagic you will reach an annual inflation of six percent. “And that’s miles short of the 2 percent the Fed is aiming for.” So there is no clear picture that inflation in America is falling very fast. According to the macro economist, the fact that the figure remains on the high side means that the Fed must continue to raise interest rates for the time being.
The phase we have now entered is a phase of ‘slow motion inflation’, says Mujagic: ‘We are coming out of a period of high inflation caused by energy prices. That effect is now ebbing away and that is why we have to look at the sticky inflation.’ According to the macro-economist, this is the part of inflation where prices are historically known to change very slowly. ‘That gives a good picture of where inflation is going and you can see that inflation is slowly rising.’
Declining house prices
Yet there is also hope according to Mujagic, because it gets better when you look at the overall inflation rate in the US. One-third of that figure is housing costs, so it’s on the high side. What house prices do in the US later translates into that part of the inflation rate, the macro economist knows.
House prices are slowly falling. If we forget the current inflation rate, there is a good chance that before we can think about summer holidays, US inflation will be significantly lower,’ Mujagic suspects. “Then the door opens for the Fed to think it’s had enough with all those rate hikes since March and then they decide to call it quits.”
