Inflation, oil, monetary policy variables

Consumer prices Details of the upcoming inflation data show that the upward move in May will continue in June. The realization of the 1.1% expectation on a monthly basis is sufficient for the annual CPI increase to be 8.8%, in which case the highest inflation rate in 41 years will be experienced. The direction of these data is, of course, important in terms of the tides in the 50-75 perspective of the Fed’s monetary policy move. While it is worried that high data will force a tighter monetary policy tightening, it is also wondered whether the ongoing oil price retracement since mid-June will create a perspective change.

Energy prices The impact of oil prices is likely to be limited for June, and the upward momentum may even have continued on the energy side. It is possible to understand this from the psychological threshold of gasoline prices per gallon in the US. Oil price and fuel price are not always simultaneous and have the same correlation. Therefore, the decrease in oil prices will probably affect the prices with a little delay. In order to observe the lowering effect of consumer prices, oil prices should not increase again.

 Comparison of CPI and oil prices

Inflationary pressures Inflationary pressures are still quite high. The recent decline in commodity prices may be creating some room for movement. However, the rates are still very high historically and this effect seems to continue for a while. There is a significant range of uncertainty.

The expectation that the Fed will slow down the rate of rate hikes in the broad term and even start to loosen again after a certain point is increasing. However, short-term Fed expectations are still quite aggressive. Within the framework of the hawkish structuring within the Fed, we followed the process of switching from a double dose to a three dose rate hike in the inflation conjuncture. We assume that at this month’s meeting, I will see three doses of rate hikes in a similar perspective. In order to suppress inflation, the Fed will quickly bring interest rates well above neutral level in a short time.

Conclusion? The short- and medium-term perspective seems to be divergent. To what extent has the FOMC view changed over this period? We saw some moderate wage growth in employment details. We have also observed a recent decline in commodity prices. Could it allow us to see slower rate hikes in a recession escape perspective, as it provides some relief in theory? The answer is yes in theory, but in practice there are other variables to be sure of.

Kaynak: Tera Yatırım

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