The Reduction of Inflation in the U.S. May Be Temporary

The U.S. inflation reading for June turned out lower than many expected. Nevertheless, analysts believe this trend is likely to be temporary, and price growth is expected to accelerate again in the coming months.

According to Wolfe Research, a repeat of June's low reading is less likely, though inflation in the second half of the year is expected to be more stable than in the first half of the year.

This year, developments in the Middle East have had the greatest impact on inflation. Following military operations launched against Iran in February, oil prices surged sharply, which also contributed to overall price growth.

The picture changed in mid-June when oil became cheaper following a temporary ceasefire agreement. As a result, fuel prices in the U.S. also declined, which was reflected in the June inflation reading.

According to analysts, slowing inflation was not caused by oil price reductions alone. Price decreases in telecommunications and auto insurance also contributed to it.

They note that one trend has emerged in recent years: companies typically raise prices mainly at the beginning of the year, while in the second half of the year they more often resort to discounts and various promotions. This is precisely why inflation in the second half of the year is generally relatively moderate.

At the same time, the new head of the Federal Reserve System, Kevin Warsh, is a proponent of strict monetary policy. Analysts do not rule out the possibility that the interest rate could increase once more by the end of the year.

Source: Investing.com