Key test for global markets: emerging inflation in the US, China and Brazil

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Key test for global markets: emerging inflation in the US, China and Brazil

Wall Street on Tuesday recorded mixed results after Black Monday and returned to levels similar to the beginning of the year.

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Now the markets are expecting a single number: US inflation for April. March’s 8.5% (the highest rate since December 1981) left the door open for a 0.50 percentage point rate hike last week. But also because of the expectation that the rise will continue and this will lead to a greater than expected risk of a global slowdown.

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The underlying certainty is that the Federal Reserve will continue to raise rates between now and the end of the year, which is now in the 0.75-1%range, up to approximately 2 points. This follows words offered by Federal Reserve chairman Jerome Powell last week. The big question mark in the market is whether the increases will be 0.50 points or 0.75. The inflation figure for April will help clarify this scenario.

April inflation in the US could be around 8.1%. Given the lower momentum of energy prices, expectations put the monthly number slightly lower than that registered in March. The market will be attentive to what happens to the measure of core inflation. It can rise to 0.5% m/m, breaking three consecutive months of moderation.

“Inflation is too high and we understand the difficulties it poses, and we are moving quickly to reduce it. We have the tools we need and the determination that will be needed to restore price stability on behalf of American families and businesses,” “Powell said last week. His former representative, Richard Clarida, warned that the Fed would need to raise the rate by the end of the year not to 2% but to 3.5%, which means a tighter monetary policy.

The war in Ukraine and the new restrictions on China due to the emergence of the Covid cases have resulted in supply restrictions and therefore rising prices.

Asked last week if the United States would be able to lower inflation without causing a slowdown in its economy and rising unemployment (now almost at pre-pandemic levels), former Treasury Secretary Larry Summers said replied “no, under no point of view”. And Princeton economist and former Fed Vice Chairman Alan Blinder said that while it’s true that the U.S. has had a weak downturn for its economy after raising rates 7 in the last 11 times it did, “this time inflation is at its highest level in 40 years and is not comparable “. Financial Times columnist Martin Wolf said that “a soft landing for the U.S. economy is possible, but unlikely.” He still thinks there could be a recession.

Inflation data for Brazil and China will also be released today. The data for March in the first is 1.7% monthly and in the second 1.5% annually. Most analysts agree: inflation in China this year will not exceed the Communist Party’s target of 3%. The Chinese government uses aggressive tactics to curb the rate at which prices rise such as price controls and protectionist measures. The last time China registered a peak of inflation was in the 2008 crisis (5.9%) and between 2011 and 2021 the average was 2.6% per year.

In Brazil today inflation will come out. Since it has already risen (11.3% in March), it does not rule out that the Central Bank will raise rates again. To curb rising prices, the Central Bank raised the interest rate to 12.75%, but it will still make another half -point adjustment. In the Government they believe that the inflation rate is close to peak.

For its part, tomorrow inflation data in Argentina will be known (see more on page 21). According to the official interpretation, the global context of rising inflation is already having an impact on domestic costs.

Source: Clarin

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