Seattle-area residents are experiencing the largest increase in household energy costs in a decade, primarily due to rising electricity costs and higher natural gas prices, causing financial difficulties for many residents who are cutting back on expenses for food and medicine.
Core inflation in the UK may continue to remain high and volatile due to the implementation of Brexit, discrepancies in wage growth, the direct effects of Brexit on prices, and fiscal policy challenges, which could result in higher and more unpredictable inflation compared to the US and euro area.
High energy prices and strong economic growth could lead to a rebound in inflation, with prices likely hovering around 5%, according to a former White House economist.
British factories in August experienced their weakest month since the start of the COVID-19 crisis due to shrinking orders caused by rising interest rates, according to a survey, resulting in a decline in purchasing activity, inventory holdings, and staffing levels. However, the slowdown in domestic and export demand has alleviated inflation pressures, potentially leading to a decrease in goods price inflation. With the economy showing signs of a slowdown, the Bank of England is expected to raise rates for the 15th consecutive time, despite concerns that it may lead to a recession.
The two different inflation measures in Ireland, the Consumer Price Index (CPI) and the harmonized index of consumer prices (HICP), have started to diverge, with the HICP falling quicker than the CPI due to mortgage interest costs being included in the latter, revealing a crucial shift in the inflation dynamic as mortgage interest costs have overtaken energy prices as the main driver of inflation. Additionally, the increasing number of fixed-rate mortgage customers facing higher interest rates could keep inflation higher for longer, along with other factors such as higher food prices and ongoing rental market pressures.
US household savings accumulated during the pandemic are expected to be depleted by the end of September 2023, as the excess savings have steadily declined and are projected to continue falling at a rate of $100 billion per month, potentially impacting consumer spending and the wider economy.
Americans are expecting high inflation to persist over the next few years, with a median expectation of 3.6% one year from now and estimates of around 3% three years from now, according to a survey by the Federal Reserve Bank of New York. This suggests that sticky inflation may continue to be a concern, as it surpasses the Fed's 2% target. Consumers also anticipate price increases in necessities such as rent, gasoline, medical costs, and food, as well as college tuition and home prices.
The United States is experiencing inflationary pressures due to rising home prices and rental costs, posing challenges for homebuyers and renters, and potentially leading to broader increases in related services and inflation in other categories. Fed regulators are expecting deflationary trends in the future, but the interaction between housing data and the broader economy is crucial. The imbalance between supply and demand in the housing market needs to be addressed for prices to stabilize.
Rising energy costs are predicted to contribute to an increase in inflation rate, but it is unlikely to prompt the Federal Reserve to raise interest rates, though there may be another rate hike in the future.
The Bank of England may raise interest rates to 5.5% this autumn due to inflation remaining above target, potentially putting further financial strain on homeowners, while households on low incomes will receive cost of living support payments from the government totaling up to £1,350 this year, and the Energy Price Cap has dropped again to £1,923 for the final quarter of the year.
Despite rising gas prices, Americans remain optimistic about inflation easing, as expectations for inflation rates in the year ahead have fallen to the lowest level since March 2021, according to a consumer sentiment survey from the University of Michigan. However, concerns are surfacing about a potential government shutdown, which could dampen consumer views on the economy.
The U.S. inflation rate has been helped by falling medical costs, but this trend is about to reverse, which could complicate the Federal Reserve's efforts to lower inflation back to pre-pandemic levels. The complex way the government measures the rise of medical costs and the fluctuations caused by the pandemic have contributed to the instability in health-care costs. The upcoming rise in health insurance costs is expected to have an impact on inflation, particularly the core rate that excludes food and energy costs. Economists are divided on the extent of this impact and whether it will hinder the Fed's fight against inflation.
