By rebounding off the multi-day low on Monday, US inflation expectations, as measured by the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data.
Support the market’s most recent reevaluation of the Federal Reserve’s (Fed) concerns.
US Inflation is Mainly Caused By Input Prices and Labor
As a result, the Fed’s policy pivot and rate cut during 2023 are supported by the deflation antecedents, which in turn support the US Dollar’s strength.
Two important US deflation indicators recently revealed ongoing price pressures, supporting the argument for the Federal Reserve to raise interest rates again next week.
The Fed’s favored indicator of underlying reduction, the personal consumption expenditures price index excluding food and energy, was up 0.3% from the previous month and 4.6% from a year earlier in March.
A separate assessment of employee costs revealed that they increased earlier in the year than anticipated.
According to a Bloomberg Economics report, labor and input prices are the main causes of deflation in the US.
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Economic Growth Slowed Down
In the first quarter, economic growth slowed down more than was anticipated as a rise in consumer spending was muted by lukewarm business investment and a reduction in inventories.
Some US policymakers claim that greedy businesses’ price gouging is what’s causing the reduction.
According to Bloomberg Economics, even though US companies’ profit margins usually grew during the pandemic.
The rise in labor and other input prices greatly boosted the amount of high deflation.
The market’s concern over the US debt ceiling expiration and the respite from the First Republic Bank issue is joined by the most recent improvement in reduction precursors to support the US dollar.
To encourage the purchase of dollars, the major bourses markets are now fully operational after the vacation on Monday.
Read more: US Inflation Reduction Act: Balancing The Impact Of Handouts On Prices And Inflation
