Tuesday will see the release of data on consumer inflation in the United States, which Americans seem to be increasingly worried about. This may also result from further surveys. Ultimately, this may affect the risk appetite for making investment decisions.
U.S. consumer annual inflation expectations appear to have risen in August 2021 for the tenth consecutive month to 5.2 percent, a new record high in the series, according to a New York Fed branch survey. The increase appears to be mainly driven by food (+0.8 percentage points to 7.9 percent), rent (+0.2 percentage points to 10 percent), medical care (+0.2 percentage points to 9.7 percent) and gas (+1.1 percentage points to 9.2 percent). In contrast, expectations for house price growth continue to moderate but remain high (5.9 percent versus 6 percent previously). At the same time, inflation expectations over a three-year horizon also rose 0.3 percentage point to a new record high of 4 percent. Perceptions of households' current financial situation improved, however, and expectations for income growth rose to a new record high.
In turn, how inflation shaped up in August, we will find out today when CPI inflation is released. The consensus assumes a reading above the 5 per cent level, while core inflation is above 4 per cent. Why might the above topic be important? Well, high inflation, along with expectations that it will continue to be high and the simultaneous lack of interest rate hikes, may cause savings to be pushed to risk, as well as increased consumption here and now, because "tomorrow" will be more expensive.
It seems that both are favorable factors for the stock market, as higher consumption at this point could translate into higher corporate earnings, while the lack of positive real interest rates on bank accounts could push capital into stocks, which could also push stock prices higher.
The biggest threat to the above pattern may be the lack of raises for workers, as inflation would then mean the possibility of a quick transition to deflation. If a consumer spends a lot more money on a particular good and doesn't have more income, they can no longer spend on another good. This in turn could cause a very sharp shock to the economy and ultimately the markets. But for the moment, wages seem to be rising along with prices in the economy.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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