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Inflationary Pressures Transitory?

According to the BLS, inflation in the US reached 5.23% annually in June, the second highest value since 1991. Core inflation reached 4.45%, the highest rate in twenty years. Monthly advances are 0.9% for both items, signs of considerable pressure in recent months. The prices of used cars rise 10.5% monthly in June, and accumulate an increase of 45.2% in the last year. Gasolines are up 45.1% annually (in part due to the low comparison base). Air fares are up 24.6% annually. Rents are up 0.49% per month, the biggest increase since 2005. The interpretation of the Federal Reserve is that the sharp rise in prices is a transitory phenomenon. According to Bloomberg, if the price index (CPI) were to be deducted from food, fuel, rent and new and used cars, inflation would be close to 4%, double the long-term objective of the Fed. In Mexico, inflation stands at 5.88%, while the underlying part (excludes volatile items such as food and gasoline) reaches 4.58%, the highest level since December 2017. The pressures in the underlying item are generalized, mainly in merchandise and food and beverages. Although gasoline presents a containment in recent weeks, it is due to subsidies from SHCP. The narrative holds that inflation will subside when supply disruptions are removed. However, it is hard to ignore that monetary and fiscal stimuli, at least in the US, are playing an important role in the demand for goods. Will the US now be an exporter of inflation? The other major inflationary risk factor is wage cost. The demand for personnel in the new post-pandemic economy is facing a mismatch between the requirements of companies and the skills or availability of the unemployed. Will inflation go down or are we in a new dynamic in the prices of goods and services? What do you think?



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