“The cure to high prices is high prices”
Transport now makes up almost half of overall CPI and, given the recent fall in oil prices, it was expected that both headline and core CPI would show signs of having peaked for now; however, energy costs falling is seemingly less of a June story – which this report encompasses – and more of a July one. CPI was expected to rise 1.1% month-on-month in June, so the 1.3% increase will not come as welcome news that the delta of inflation is slowing. Headline inflation is now running at 9.1% year-on-year, with core at 5.9%, so it is more than obvious that persistent inflation is pretty widespread amongst the constituents. It is still too early to say inflation is licked, and this firmer print today will provide none of the needed momentum to the bulls arguing for less aggressive tightening from the Federal Reserve. A 75 basis points increase in rates is now all but nailed on in two weeks’ time. The only thing to cool this inflation problem is a softening economy and the only thing to do that is higher rates, or as someone else put it – the cure to high prices is high prices.
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