Market analyst Jim Bianco predicts that Washington’s efforts to reduce inflation would be ineffective this year in particular.
And he thinks that this week’s important inflation figures will support his claim.
Nothing that I can see can lower the inflation rate. The president of Bianco Research said on Monday’s episode of “Fast Money” of CNBC that there are some things that might lower the cost of prescription drugs as well as perhaps a few other things. But will that reduce the CPI? Will the core CPI decrease to the point where we can start factoring that in? I don’t believe so, no
This Wednesday, the government releases its July Consumer Price Index [CPI], which measures how much people pay for goods and services. According to Dow Jones, the figure will be 8.7 percent, a decrease of 0.4 percent from June. Contrary to Core CPI, the headline statistic includes food and energy. The government releases its Producer Price Index (PPI) on Thursday.
Peak inflation, according to Bianco, might still be coming.
“Inflation lasts a long time. Will it continue to be 9.1 percent? Most likely not. But it might eventually level off at 4 percent, 5 percent, or 6 percent,” he warned. Why does that signify that? If inflation settles at that level, we’ll need a funds rate of either 5 or 6 percent.
Bianco claims that there is no immediate fix. He cautions that inflation will have the economy in its grip as long as wage numbers remain strong.
From what we saw in the data on Friday, wage inflation is at 5.2 percent [year-to-year], and it appears to be sticking there, according to Bianco. “You can afford to pay 5% inflation if we have 5% salaries. It won’t fall far below earnings, then. In order to reduce inflation to 2%, we must reduce wages to 2%, yet wages aren’t increasing at the moment.
“You’re going to have to walk if you don’t want to pay more for that car.”
Used automobile costs are cited by Bianco as a prime example of unrelenting inflation. He thinks that because of supply-chain problems, high demand, and chip shortages that force automakers to decrease features in new cars, high sticker prices won’t significantly change for months.
Since there is now no other means to acquire a ride, Bianco advised, “If you’re not going to pay extra for that automobile, then you’re going to have to walk.”
The average cost of a used automobile is $30,886, up 0.2 percent over the past 90 days and 10.5 percent compared to last year, according to the CarGurus index.
In the past 18 months, used car prices have actually outperformed cryptocurrency, he continued.
One of the best investments anyone could make, according to some.
The Inflation Reduction Act, which was approved by the Senate this past weekend, would, according to Bianco, have a minor effect if it were to become law.
Many of these things won’t start working for several more years, according to Bianco. “Those are ’22, ’23 tales in a world where we want to know what the Fed will do in September and when inflation is going to peak. The markets will continue to be dominated by those.
On Friday, the House is anticipated to vote on the proposal.