Rising US Inflation Brings Persistent Overshoot Into Focus
The pick-up in US inflation since March has brought the persistent overshoot of the Federal Reserve’s 2% inflation target into renewed focus, Fitch Ratings says.
US personal consumption expenditure (PCE) inflation has now been above 2% for 63 consecutive months, the longest sustained overshoot of 2% since the early 1990s and twice as long as the 30 months to September 2006, according to Fitch.
US Fed Chair Kevin Warsh referred to the fact that “…inflation has been running well ahead of the Fed’s …goal of 2% …for more than five years” amid hawkish commentary in his first Federal Open Market Committee (FOMC) press conference this month.
The global oil price shock has sharply interrupted progress made in bringing inflation back towards target. US data showed that consumer price index (CPI) inflation rose to 4.2% in May from 2.4% in February while PCE inflation increased to 4.1% in May from 2.9% in February.
Fitch said this was driven by the jump in energy prices as global oil prices surged after the US-Iran conflict began and the effective closure of the Strait of Hormuz severely restricted Middle East oil exports.
“Higher oil prices pushed up inflation worldwide, as illustrated in Fitch’s latest Economic Monitor. For example, CPI inflation rose to 3.2% in May in the eurozone, up from 1.9% in February, and to 3.2% in Canada, up from 1.8%.
“Among emerging markets, CPI inflation climbed to 4.7% in May from 3.8% in February in Brazil, to 3.9% from 3.2% in India, to 4.5% from 3% in South Africa, and to 3.1% from 2.1% in Poland”, Fitch said.
Bitcoin Price Slides to $59k as US Inflation Stokes Selloffs
