Asia open: Drop kicked into touch
Wall Street's reaction to Tuesday's BLS inflation update was disappointing but echoed price pressure concerns from most lower and middle-income American consumers.
The persistence of price pressures in the world's largest economy shouldn't surprise. With the labour market expanding, consumer spending robust, and consumer sentiment rebounding sharply since November, coupled with soaring existing home prices, it would be unexpected if inflation didn't increase again.
This juxtaposition between a strong economy and disinflation is often viewed with skepticism, as, in theory, it shouldn't occur. However, many were caught off guard and in denial this time.
Investors were dropped-kicked into touch, and a punchy encore next month could be a game-changer, requiring a total reassessment of first-half rate cuts.
On Tuesday, Lael Brainard pointed fingers at corporate practices, attributing some blame for lingering inflation to corporate greed. She highlighted how staples like eggs or milk have seen price reductions, but consumer brands have opted for "shrinkflation" instead of lowering prices.
Janet Yellen expressed a more optimistic view, suggesting that month-to-month fluctuations shouldn't be overanalyzed. Despite the challenges, she remains confident in ongoing progress toward reducing inflation.
Brainard's comments may be brushed aside among corporate American leaders, and Yellen's comments may be ignored, at least today, with many investors suffering from the ultimate gut punch: higher inflation.
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
