Insights from alternative data: is inflationary pressure easing in the US?
US CPI inflation – the latest trends
The US CPI inflation has been increasing in the last year and reached more than 9% in early July, the highest level in four decades. The rise in prices was initially fuelled by the post-pandemic recovery and the consequent demand shock. It was then exacerbated by Russia’s invasion of Ukraine, which caused additional inflationary pressure with supply shortages in energy, food, and raw materials.
During June US CPI rose nearly 60% year-on-year. The main culprit of the high inflation recorded in the US recently was the increase in motor fuel prices. QuantCube examined the trend in motor fuel prices using real-time alternative data to see if it is continuing to cause inflationary pressure. As Exhibit 1 indicates, it seems that motor fuel prices have started to ease in July. Our CPI Nowcast for US motor fuels indicates that motor fuel inflation dropped to 46 % as of July 29 from 59% a month ago.
Exhibit 1: QuantCube CPI - Motor Fuels Nowcast US
Drop in motor fuel prices and inflation
In April this year the Biden administration announced a plan to boost the supply of oil and gas. The action included the oil release from the Strategic Petroleum Reserve, and in particular, aims to release approximately 1 million barrels of oil per day for 6 months to help reduce gasoline prices.
Since motor fuel prices are a significant contributor to the overall inflation level, the decrease in fuel prices seems to have contained overall inflation level in the US. Exhibit 2 shows the trend in QuantCube US CPI Nowcast. Reflecting the fall in motor fuel prices It recorded a drop of 0.8 percentage points compared to the end of June.
Exhibit 2: QuantCube CPI Nowcast - US
What’s next?
Although US inflation seems to have peaked, it still remains four times higher than the Fed’s long-term inflation target. Will the Fed increase interest rates further to tame inflation? Or will these first signals of easing inflation lead to less aggressive monetary policy in the coming months? We will wait and see what happens.
