US inflation surge: peak likely passed, but near-term price pressures remain
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The US headline inflation figure for June came in at 5.4% year-on-year, the second highest monthly reading in the last 40 years. However, we suspect the surge in prices has likely peaked.
The key takeaways from this edition of Economic Insights are:
- Supply disruptions and strong demand supported by fiscal stimulus have pushed prices higher this year. But we view the main recent price rise drivers as transient.
- For inflation to remain elevated, there would need to be persistent wage growth, higher credit creation and/or multi-year policy changes.
- Market participants seem to share our view that inflation pressures will be higher in the near- than in the medium-to-longer terms.
- Mid-term, we see inflation reverting to the Fed's target of around 2% but risks are to the upside.
- Lasting higher inflation would challenge insurers' balance sheets.