Is Inflation Really Coming To The United States? How Will The Foreign Exchange Market Change?

Producer price inflation continued to slump in the United States, with an increase of 1.6% in October.

On Monday, crude oil futures fell to $1.2 a gallon - close to the 2009 low.

Copper prices are also sluggish.

But if we look closely, we will see that inflation may have begun to improve.

According to the data released by the US Labor Bureau, the US core CPI grew by 1.9% in October, close to the 2% target of the Federal Reserve.

Bond investors are betting that inflation will stabilize and further improve.

Analysts at Capital Economics point out that since October, the inflation rate has increased by about 15 basis points to 2.2% in 5 years, /5.

Oil prices fell by nearly 10% during the same period.

Capital Economics believes that this reflects that the market expects that the drop in energy prices is less related to the US economic growth, but more because of the supply of crude oil.

Stanley Fischer, the vice chairman of the Federal Reserve, said last week that he expected downward pressure on inflation caused by falling energy prices to dissipate in the coming months.

Capital Economics analysts also said that the decline of PPI in October was not enough to fear.

This is mainly influenced by one time factors.

They point out that service prices are rising steadily, and there is evidence that medical and housing prices will also rise.

In terms of housing, the rate of rent growth will accelerate in 2016 as the vacancy rate drops.

In terms of health care, Capital Economics predicts that PCE medical inflation is expected to reach 1.5% in 2016, up from 0.6% in September.

Due to these expectations, Capital Economics expects the Federal Reserve to raise its current zero interest rate to 2% next year.

This expectation is far ahead of market expectations.

Federal funds futures show us

It will not rise to 2% until the end of 2018.

The royal capital market also believes that inflation data is mainly affected by oil prices.

Wall Street information website today, according to the Royal Canadian

Tom Porcelli, chief US economist, calculates year-on-year.

Although data are very low, oil prices must be taken into account.

His monthly inflation index showed a sharp rise in inflation in October.

"To be honest, the internal factor is still very strong. Our 15 category diffusion index has increased by 9 points to 18 months."

Porcelli says.

Porcelli also believes that the Federal Reserve's PCE CPI inflation index is now at 1.3%, and will soon catch up with the core data, because the subsidy policy for health insurance premiums will change next year.

Coincidentally, Goldman Sachs's Alec Phillips also believes that medical inflation is bound to rise in 2016, and the pressure of policy on the sector's inflation will dissipate.