Asset Allocation Strategy
US Inflation Pressures Ease for Now
Mon 20th September, 2021

The assumption of relatively low inflation is central to the pricing of interest markets and permeates through the current pricing of virtually all risk assets. So, any signs of a crack in the low inflation thesis (such as the dramatic spike in US inflation in the second quarter) need to be watched closely.

Last week’s US August CPI report produced another moderate downside surprise. Core CPI eased 0.3 percentage points to 4.0% year-on-year (YoY) versus a consensus expectation of 4.2% YoY.

The month-on-month (MoM) changes in both headline and core inflation came in below market expectations. Headline CPI softened to 0.3% MoM from 0.5% while the core figure decelerated to 0.1% MoM from 0.3%.

Therefore, the August CPI provides some further evidence (following a downside surprise in July) that inflationary pressures peaked in the second quarter, at least for now. This trend supports our argument that the primary forces driving up US CPI recently are largely transitory.

Notably, the weaker inflation result reflects continued easing among sectors that experienced strong upside pressures related to the pandemic, such as airline fares and vehicle prices. Download the report to read more on:

  • US inflation debate not dead and buried
  • The change in Fed thinking - A more flexible approach to inflation
  • Positioning for the ebb and flow of inflation

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Written by

David Cassidy , Head of Investment Strategy

David is one of Australia’s leading investment strategists.

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