Based on the experienced economist Steve Hanke, the USA not has an issue with inflation.
“I believe the history of inflation is history. One reason is that the cash supply is shrinking by minus 4% year-on-year in the USA,” Hanke, a professor of applied economics at Johns Hopkins University, told CNBC’s Street Signs Asia on Thursday.
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“We have not seen that since 1938,” Hanke said. “Changes in the cash supply cause changes in the worth index and inflation.”
Prices are displayed at a food market on 02/01/2023 in Recent York City.
Leonardo Muñoz | Corbis News | Getty’s paintings
The US inflation rate in June was lower than expected and stood at 3% on Wednesday, the smallest year-on-year increase in two years. The core consumer price index, which takes under consideration volatile food and energy prices, increased by 4.8% year-on-year and by 0.2% month-on-month.
The most recent data could give the Federal Reserve some leeway because the central bank navigates towards rate of interest policy.
The US Producer Price Index shall be published on Thursday. If it also shows price declines, it might further influence the Fed’s decision to quickly end the cycle of rate of interest hikes.
Traders are betting that there’s a 92.4% likelihood the Fed will raise rates of interest at its July meeting. CME Fed Watch tool.
“As inflation went up and down, it was the producer price index that went up first, after which consumer prices. After which eventually the core progressively, like a snail, grew,” Hanke said.
Let’s forget all of the propaganda we hear – that the chairman of the Federal Reserve has a significant issue, that it should be a protracted fight, things are sticky, and so forth. Things usually are not sticky.
Steve Hanke
Professor at Johns Hopkins University
“Now we’ve got turned the tables and producer price indexes are falling like a rock. The buyer price index is falling almost like a stone. And the core is left behind,” he said, adding: “We are going to see all of it crumble so long as they proceed to tighten up quantitatively. “
Central bankers are likely to pay more attention to core inflation, which remains to be well above the Fed’s annual 2% goal.
But Hanke noted that if the Fed keeps “doing what it’s doing,” it could reach “the two% range pretty quickly.”
“Forget all of the propaganda we hear – that the chairman of the Federal Reserve has a significant issue, that it should be a protracted fight, things are sticky and so forth. Things usually are not sticky,” the professor noted.
— Jeff Cox of CNBC contributed to this text.
Correction: This story has been updated to appropriately reflect market expectations for the following Federal Reserve meeting.