USA: Inflation expectations remain subdued


Corona pandemic and lockdown: As a result, the inflation rate in the USA went into decline in the spring. From over 2 percent at the beginning of 2020, it fell steeply from March onwards, only finding a halt just above the zero line in May. Over the summer, however, prices climbed back up again quite a bit. In August, consumer prices were an average of 1.3 percent higher than in the previous year. Irrespective of this, the central bank intends to maintain its ultra-expansive monetary policy for some time to come. Will the inflation rate continue its ascent in larger steps?

We see no reason for this, at least in the short to medium term. First of all, the price trend over the summer months was mainly due to special effects. The price of crude oil had recovered to a considerable extent in the meantime, and some of the discounts previously granted for services and goods were reversed following the easing of corona restrictions. However, this "normalization" of the price level is now well advanced, and the price of crude oil has recently slid back somewhat lower, as demand is still weak.

Further sharp price increases would require a longer period of strong consumer demand. Consumers remain sceptical, however, and economic momentum is likely to slow down significantly in the autumn already. The large number of new infections and the high level of unemployment are contributing to this. But even the political haggling before the elections is not helping the economy: yesterday saw the official end of a new fiscal package. This is unlikely to happen before the presidential election at the beginning of November, although the US Federal Reserve recently called for new economic stimulus measures from the government in clear terms. All in all, no major upward price adjustments are therefore to be expected in the coming months.

By contrast, the inflation rate is likely to shoot up abruptly in the spring of 2021 and will probably even reach the 3 percent mark. However, the noticeable inflation will probably not last long. This is because it will primarily be a statistical "base effect", caused by the sharp drop in prices from March 2020 onwards as a result of corona.

In 2021, the expected, overall quite strong economic growth in the USA will allow a higher inflation rate than in the current year. However, this will still mainly be a matter of economic recovery. The economy is not running "hot". The rate of inflation is therefore likely to settle at just under 2 percent and average 1.8 percent. Although this would be significantly higher than in the current year (inflation rate of just over 1 percent), it would not put excessive pressure on prices either.


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