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Inflation victory is proving elusive for central banks

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The fight against inflation in the U.S. and Europe is proving to be a challenging battle, with recent trends showing a halt in the decline or even slight increases.

This shift is challenging the assumptions that guided central bank policies and market expectations.

After witnessing a decline from the highs of approximately 9% to 10% across advanced economies in 2022, which were largely attributed to easing supply-chain blockages and normalisation of commodity prices, the journey towards lower inflation has hit a roadblock.

Underlying inflation, which excludes volatile food and energy prices, had slowed to 3% in the latter half of last year but has since inched up to 3.5%, according to estimates by JP Morgan.

This trend is causing investors to reconsider their expectations that inflation would steadily decline towards central banks’ targets, typically around 2%.

U.S. Federal Reserve

Commodity markets

There are growing concerns that inflation could surge once again, echoing the second wave that characterised the high inflation of the 1970s.

Economists and central banks had been forecasting sustained decreases in inflation, contingent upon strong factors such as global labor costs, short-term expectations, and signals from commodity markets.

However, recent data suggests that these factors might not be aligning as anticipated. Services inflation remains elevated, and goods prices, which had previously fallen, are now on the rise.

Central bankers had anticipated that the final stretch of reducing inflation would be turbulent. However, they are indicating a readiness to wait before resorting to rate cuts.

A deviation from expected rate cuts could have significant repercussions for the global economy and markets, which had rallied on the assumption of such cuts.

Recent data from the U.S. Commerce Department revealed that the price index of personal-consumption expenditures, the Federal Reserve’s preferred inflation indicator, rose by a modest 2.5% in the 12 months through February.

However, the index excluding food and energy witnessed a more significant increase, climbing by 3.5% on an annualised basis over the three months through February.

Slowing progress

Fed governor Christopher Waller expressed concerns about the slowing progress on inflation, suggesting a need to reconsider the frequency and timing of rate cuts.

Fed Chair Jerome Powell, however, maintained a more balanced stance, highlighting the occasionally bumpy path toward 2% inflation and said the strength of economic growth as a factor allowing policymakers to wait for more data.

Joachim Nagel, president of Germany’s Bundesbank, cautioned against premature rate cuts, citing the risk of missing inflation targets and the potential need for subsequent rate hikes.

He referenced an International Monetary Fund report that highlighted the persistence of inflation shocks over extended periods.

Stubborn inflation

Eurozone countries are also grappling with stubborn inflation.

In Italy, underlying inflation edged higher in March, while French services prices remained elevated despite a cooling headline inflation rate.

The resilience of economic growth, particularly in the U.S., coupled with strong consumer spending and job creation, has contributed to the persistence of inflationary pressures.

While Europe’s growth has stalled, recent indicators suggest a potential upturn. Additionally, wage growth remains high, reflecting tight labor markets, and is a significant driver of services-price inflation in the eurozone.

Central banks may inadvertently be contributing to inflationary pressures by signaling a pivot toward rate cuts, which has suppressed borrowing costs and boosted asset prices.

Ahron Young is an award winning journalist who has covered major news events around the world. Ahron is the Managing Editor and Founder of TICKER NEWS.

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Money

Workers rush back to their desks over job fears

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Workers across Australia are rushing back to their desks, driving office utilisation rates to their highest levels since February 2020.

Tuesdays, Wednesdays, and Thursdays emerge as the busiest in-office days, contrasting with the continued reluctance to return on Fridays.

This insight, drawn from XY Sense data based on 18 enterprise customers in Australia employing approximately 68,000 individuals across 127 buildings, reflects a significant shift in workplace dynamics.

The surge in office attendance coincides with a resurgence in workplace attendance mandates and policies linking physical presence to bonuses and performance reviews.

However, co-founder of XY Sense, Alex Birch, suggests that rising job insecurity, rather than these policies, primarily drives this behavioral shift.

“The pendulum has moved towards the employer, and therefore people feel more obliged to go back into work,” commented Mr. Birch.

Job market

Danielle Wood, chairwoman of the Productivity Commission, anticipates this trend to persist as the job market softens.

She notes a disparity between employer and worker perceptions regarding the productivity benefits of hybrid work arrangements, hinting at potential shifts in the employment landscape.

Meanwhile, economists at the e61 Institute observe a partial reversal of the pandemic-induced “escape to the country” trend.

Rent differentials between regional and capital city dwellings, which narrowed during the pandemic, are now widening again.

This trend suggests a diminishing appeal of remote work options and a return to urban commuting.

Aaron Wong, senior research economist at e61, said the emergence of a “new normal,” characterised by a hybrid lifestyle that blends access to office spaces with proximity to lifestyle amenities such as natural landscapes.

While regional rents decline, rents for homes on the urban fringe surge, reflecting evolving preferences shaped by remote work opportunities.

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Money

Why resilient economy is fuelling demand for Australian property

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Despite inflationary pressures, Australian house prices have surged to a record high for the fifth month in a row, as indicated by CoreLogic data.

Australian house prices have not only weathered inflation but have also soared to unprecedented levels, marking the fifth consecutive month of record highs, according to data from CoreLogic.

This resilience reflects the enduring demand for property in the country, showcasing the sustained interest of buyers despite challenging economic conditions.

VentureCrowd’s Head of Property, David Whitting, talks how investors can access alternative ways of property investing.

Presented by VentureCrowd #funding futures #housing #economy

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Money

Three reasons why you don’t need to panic about inflation

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Inflation in the US has exceeded expectations for the third consecutive month, driven by increases in essential commodities such as oil, electricity, takeaway food, and medical costs.

  1. Despite a 3.8% year-on-year rise in CPI, it’s notable that this figure has decreased from its previous 9% high.
  2. The robust CPI and economic growth numbers suggest a positive outlook for US corporate earnings.
  3. The S&P500 has seen five 1% drops this year, all of which were met with investors buying the dip.

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