American veteran economist Steve Hanke believes that the US no longer suffers from the problem of inflation.
“I think the inflation story is historical,” a professor of applied economics at Johns Hopkins University told CNBC. “One of the reasons for this is that the money supply in the United States is shrinking at an annualized rate of 4%.”
“We haven’t seen this since 1938. Changes in the money supply cause changes in the price index and inflation,” Hanke added.
Inflation in the US was less than expected in June and stood at 3% on Wednesday, the smallest annual increase in two years. The core consumer price index, which excludes food and energy price volatility, rose 4.8% year-over-year and 0.2% month-on-month.
The latest data may give the Federal Reserve some wiggle room when the central bank meets to discuss the direction of interest rate policy.
The US Producer Price Index will be released later on Thursday. And if it also shows lower prices, this could further influence the Fed’s decision to end the rate hike cycle soon.
According to CME FedWatch, traders are betting that there is a 92.4% chance the Fed will keep rates unchanged at its July meeting.
“When inflation fluctuated, first the PPI went up and then the CPI went up,” Hanke said. However, the core inflation index is declining very slowly.
“Now we’ve reversed the situation and the PPIs are dropping fast as a rock. The CPI numbers are dropping even faster, but core inflation is lagging. We’ll see it all go down as long as they hold numbers.” tightening.”
This is because central bank policymakers tend to look more at core inflation, which remains well above the Fed’s annual target of 2%.
But Hankey noted that if the Fed continues tightening, it could get to the “two percent range” very quickly.
“Forget all the propaganda we hear about the Fed chair having a tough problem, it’s going to be a long fight, inflation is sticky, etc,” he said.
