US inflation is still a big problem, but the problem is perhaps getting smaller.
Two things have stood out from last night’s print 8.5% annualised price. First is that the rate of inflation must continue to fall in the coming months in line with lower energy prices. Everything else will lag, especially jobs and wage growth.
But eventually, with a lower oil price, the inflation rate will become less of a problem next year.
The second point is that housing is still resilient despite consecutive rate rises. We’re seeing the same trends here in Australia. The housing market collapse fears aren’t eventuating because rents are rising and jobs are fundamentally as strong as they have ever been.
There’s also a housing supply problem around the world and recent cost rises in raw material costs will make things worse in coming years.
Bottom line: Rising interest rates are having their desired effect. Central banks around the world like the Fed and RBA are in complete control. They’re managing to raise rates, and cool the boil-off inflation without breaking the jobs or housing market.
We think central banks will soon ease, let things level off, and maintain talk of more rates coming but they won’t probably have to do as much heavy lifting as they wait for things to adjust.
This makes it a great time to buy undervalued, long term resilient, income-producing assets.
Market insights and analysis from Peter Esho, co-founder at Wealthi, Sydney-based property investment company.
