Paula Lakhoff
| The Money Show’s Bruce Whitfield interviews Kevin Lings, Chief Economist at Stanlib Asset Management.
– Inflation in the US eased slightly to 8.5% in July due to lower energy prices
– The dollar weakened on the news, and the rand rose by almost 3%.
– “I think inflation will continue to decline,” says Kevin Lings, chief economist at Stanlib Asset Management.
Inflation in the US eased slightly to 8.5% in July due to lower energy prices.
In June, it reached a record level of 9.1%.
The fact that America’s inflation rate has fallen for the first time in almost a year is a positive sign, but in many ways the world is still in deep trouble, comments Bruce Whitfield.
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Whitfield asks Kevin Lings (chief economist at Stanlib Asset Management) where the new figure puts us in the US inflation cycle.
Lings sees this as a turning point in terms of the headline numbers, but there are challenges ahead for the US central bank.
I think 9.1% is going to be the peak of inflation, and so that number is indicative of the first softening… Going forward, I think you’ll see inflation continue to moderate.
Kevin Lings, Chief Economist, Stanlib Asset Management
The problem is that their target is 2%, so they still need a long time to get that down from 8.5%…and there are some big areas along the way that aren’t going to go down…so-called housing inflation … which is basically rent or home value inflation.
Kevin Lings, Chief Economist, Stanlib Asset Management
Once that number goes up, it’s very hard to get it under control…without a major housing market downturn.
Kevin Lings, Chief Economist, Stanlib Asset Management
Does this still mean higher interest rates for a long time?
The Fed was expected to announce another 75 basis point rate hike at its next meeting, but lower inflation leaves room for a possible half-percent hike, Lings says.
“But you’re still looking at back-to-back rate hikes … You’ve probably got another 100 basis points before you’re at the top of the interest rate cycle.”
Lings says the development simply eases the anxiety that has been building in recent months, also in South Africa.
It doesn’t solve the inflation problem… It probably won’t be until 2024 that you actually hit the target… and no doubt our Reserve Bank is paying close attention to what the US is doing.
Kevin Lings, Chief Economist, Stanlib Asset Management
Our fuel inflation is similar to US inflation in percentage terms, so we are comforted by the fact that these numbers will start to come down… the stronger rand also immediately helps us and we have better forecasts for petrol prices again.
Kevin Lings, Chief Economist, Stanlib Asset Management
Scroll to the top of the article to hear Lings’ analysis
This article first appeared on CapeTalk: US Inflation Declines, But You’re Still Expecting Consecutive Rate Hikes
