The last ones inflation datareleased Wednesday, showed consumer prices rose as expected in November, keeping the Federal Reserve on track to cut interest rates again in December.
The most recent data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose 2.7% compared to a year ago in November, a slight rebound from the 2.6% annual increase in October . The annual increase matched economists’ expectations. The index rose 0.3% from the previous month, above the 0.2% increase recorded in October and also in line with economists’ estimates. This was the largest monthly increase since April, after a 0.2% increase in the previous four months.
In “underlying” terms, which exclude the more volatile costs of food and gas, prices in November rose 0.3% from the previous month, the same as in October, and 3.3% compared to last year , the fourth consecutive month with this increase.
How the market analyzed it
The persistent nature of this increase “is a little disconcerting,” wrote Paul Ashworth, chief North American economist at Capital Economics, on Wednesday. “But we don’t expect this to convince the Fed to skip another 25 basis point cut at next week’s FOMC meeting.”
Core inflation has remained stubbornly elevated due to rising costs for housing and services such as insurance and health care. Used car prices also saw a monthly increase, rising 2% in November due to a recovery in auction prices.
Although inflation has been slowing, it remains above the Federal Reserve’s 2% annual target.
The choice of donald trump as the country’s next president has further complicated the outlook, with some economists arguing that the US could face a new resurgence in inflation if Trump delivers on his key campaign promises. Immediately after the report, lMarkets continued to price in a 25 basis point cut at the central bank meeting next week, with the odds of a cut rising to 97% from 89% about a day earlier.
“As markets came into this data with fears of an upside surprise, the online number is being received very positively,” wrote Seema Shah, chief global strategist at Principal Asset Management. “But overall, the Federal Reserve will be concerned about the very persistent nature of inflation and will be increasingly cautious about the risks of upside inflation that President-elect Trump’s policies could bring.”
How does this impact Argentina?
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Financial assets. A cycle of rate cuts in the north could generate new momentum for stocks, both local and foreign, which although they already show a positive trend in 2024, experience high volatility in December, raising doubts about whether this would mark a point turning point in the bullish cycle.
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Exports. Regarding raw materials, which are fundamental for Argentine exports, a policy of lower rates in the US could weaken the dollar against other currencies, including those of emerging economies, which would make commodities priced in dollars more expensive. Although the price of soybeans is not in ideal ranges in 2024 due to excess supply, the Fed’s rate reduction could help support prices of exportable products.
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“Soft landing” of economic activity. Economic growth in the US, close to 2.8% annually, is considerable although it is perceived as below its potential. The risk of recession seems to be receding for the US economy, which would generate a greater boost to global demand, which is key to Argentina’s economic recovery.
In this regard, the Bull Market Broker Research team pointed out that “the rate futures are discounting another drop of 25 pts today when a rate reduction was not on the table a month ago. The drop in oil last month helped a lot. in decompressing any risk”
They added that there is also a relevant fact, the potential devaluation of China could help the FED because the Chinese lose purchasing power and that reduces global imports from China, especially commodities… taking pressure off the entire global basket of tradable goods.
“Today a devaluation of China is useful for the Fed to continue lowering the rate without overheating the economy. Argentina gains in cheaper funding, but loses in international prices,” he noted.
Eric Paniagua of EpYca consultants pointed out regarding the impact in Argentina that current conditions allow a rate cut. I wouldn’t be surprised if a taper takes place at the next meeting, December 18, the last FOMC meeting of the year. However, the subsequent speech is likely to be more “hawkish“, suggesting that the rate could remain stable in 2025 due to future inflationary pressures.
Source: Ambito
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