Rising Prices Await Us
In the global economic landscape, inflation rates have been a topic of interest lately. While inflation itself does not inherently harm the business landscape, recent figures have raised eyebrows.
In Europe, the annual inflation rate stands at 2.0 percent, a slight increase from previous months. However, the focus of inflation-conscious gaze is more towards the US. According to Nordea strategists, who predicted inflation was coming in the spring, the annual US core inflation, which does not consider energy and food, has risen significantly. Last month, it almost doubled the average of recent months, reaching 3 percent.
The vehemence of the increase in prices was somewhat surprising, as many anticipated a rise compared to the COVID-19-stricken figures of the previous year. In April 2021, prices in the US rose by 4.2 percent compared to the same month in 2020, higher than the expected 3.6 percent. This surge has caused the annual US core inflation to rise above consensus estimates.
Nordea's trend model calculated an 8 percent inflation rate for the US in summer 2021 due to higher energy prices, supply chain disruptions, and increased demand post-pandemic. Energy prices in Europe have also seen a rise, with over a 10 percent year-on-year increase.
Despite these high inflation numbers, Nordea experts suggest that they may not necessarily alarm investors or call the central bank to action. Jerome Powell, head of the US Federal Reserve, emphasizes that inflation is temporary. The question, however, is not whether inflation is coming now, but how sustainable the price increase actually is.
In the euro area, the annual inflation rate is 1.6 percent, lower than the US, with core inflation below one percent. This suggests a more stable economic situation in Europe compared to the US, although energy prices remain a concern.
Everyone, including a child with a calculator, can predict a further increase in the coming months, according to Nordea strategists. As the global economy recovers from the pandemic, it will be interesting to see how these inflation trends unfold.
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