The latest American inflation figures, published last week for the month of January, came out above expectations and dampened the hopes of those who anticipated an annual increase in the price index of less than 3%, i.e. the levels (already) of March 2021. These figures have resurfaced the debate on the difficulty of the “last mile” (i.e. the last phase of falling inflation towards the 2% target). If the latter seem to support this theory, the downward dynamic of inflation being clearly less pronounced in recent months, this narrative, very present in the discourse of central banks, nevertheless appears contested by certain economic studies and certain central bankers themselves. -themselves. This is for example the case of François Villeroy de Galhau, Governor of the Bank of France, who does not consider that “the home stretch is, by nature, more difficult. Disinflation may be a little slower there but this does not mean a more random or difficult “last mile”. Thus, after a first phase of very rapid decline in inflation, faster than in previous cycles, due in particular to significant base effects, the “last mile” would not be more complicated but simply longer. Patience is therefore the mother of all virtues. Unfortunately, financial markets are not patient…or virtuous (or both).
In detail, American consumer prices experienced monthly progression for the global and core indices of +0.3% and +0.4% respectively, i.e. annualized variations of +3.1% (compared to +3.4% in December) and + 3.9% (unchanged over the month). If food prices remain dynamic, particularly for food away from home (+0.5% over the month and +5.1% over 1 year), inflation remains generally concentrated on the “hard core” and more particularly rents. which represent almost two thirds of the index. The increase in prices remains significant (more than 6% annualized) and, even if the inflection point has been recorded since March 2023, the lag with the fall in real estate prices is clearly longer than expected. This gap is all the more troubling given that the “real time” indices on rents are rather balanced or even negative in monthly variation. Furthermore, rents should not completely hide the other inflationary sources, the evolution of prices in services (excluding rents) remains, in fact, still significant at +3.6% and accelerating over the month. However, the Cleveland Fed's trimmed-mean indices, which exclude the highest and lowest variations, still show a decline in inflationary pressures.
As we mentioned in our last Monday meeting, for the moment, only interest rates include fewer key rate cuts for this year. Thus, the stock markets remain, at this stage, insensitive to the context on rates and the credit market is, for its part, simply sluggish with spreads which set new lows for almost 2 years and the start of the war in Ukraine.
" Hope it lasts ! » as a late Breton comedian said.