Macro Insights Weekly: Peak inflation?
- Used car prices have begun to ease
- Freights costs have corrected from their stratospheric highs
- High interest rates ought to slow down the property market and dent rents
- The level of commodity prices is high, but y-o-y growth rates are fading
- Peak in supply side inflation and weakening growth momentum would characterise the rest of 2022
Commentary: Peak inflation?
We are not confident that geopolitical and supply side risks would abate any time soon, but nevertheless, there are signs that the rate of inflation around the world may be close to peaking. Between the slowdown in China and Euro area, and likely maturing of the cycle in the US, demand side impulse for prices is weakening. The key question is the supply side.
Looking at latest inflation data, we see a glimmer of hope. Both core PCE (widely followed by Fed officials) and trimmed mean PCE (popularised by Dallas Fed) inflation rates show signs of a peak in March onward. Used car prices, which soared last year, are correcting, with the Manheim Used Vehicle Value Index declining for three consecutive months. Persistence of chip shortages may keep the auto inventories tight, so we don’t expect a sharp correction in prices in the near term, but the level is unlikely rise further, in our view.
Additionally, High interest rates are beginning to cool the property market, which in turn ought to cause rents to peak soon. Finally, as China comes out of its Covid lockdowns and factories resume operation, frictions associated with global trade would ease. Already, freight costs have started coming down from their stratospheric highs, a source of relief for the global supply chain.
And commodities? Food and precious metals are by no means correcting substantially, but major risks appear to have already been priced in by market participants. On a year-on-year basis, these categories’ contribution to inflation have eased. Energy is still a wild card, but we expect favourable supply side development on crude oil in the coming months.
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