Washington’s efforts to rein in inflation will particularly fail this year, according to market forecaster Jim Bianco.
And, he thinks this week’s key inflation data will help prove it.
“I don’t see anything that could reduce the rate of inflation. There are some things that could reduce prescription drug prices and maybe a few other things,” the president of Bianco Research told ‘Fast Money’ on Monday. from CNBC. “But will it bring the CPI down? Will it bring the core CPI down to a point where we can actually start pricing it? No, I don’t think so.”
The government publishes its consumer price index [CPI], which tracks the prices people pay for goods and services, for July on Wednesday. Dow Jones expects the figure to hit 8.7%, down 0.4% from June. The headline figure includes energy and food, unlike the core CPI. Thursday, the government publishes its producer price index [PPI].
Bianco maintains that the peak of inflation may still be ahead.
“Inflation is persistent. Will it stay at 9.1%? Probably not. But it could stabilize in a range of 4%, 5% or 6%,” he said. “What does that mean? We’re going to need a funds rate of 5% or 6%, if that’s where inflation is going to set in.”
There is no short-term solution, according to Bianco. As long as wage figures are hot, he warns that inflation will continue to weigh on the economy.
“Wage inflation, from what we saw in Friday’s report, is 5.2% [year-to-year], and it looks pretty tacky there,” Bianco said. “If we have 5% wages, you can pay 5% inflation. So it’s not going to go down much below salaries. We need to bring wages down to 2% in order to bring inflation down to 2% and wages are not moving right now.”
“If you don’t pay extra for this car, you will have to walk”
Bianco lists used car prices as a prime example of relentless inflation. He thinks high sticker prices won’t budge significantly for months due to demand, supply chain issues and chip shortages forcing automakers to cut features in new cars.
“If you don’t pay extra for this car, you’ll have to walk because that’s the only way to get driven right now,” Bianco said.
According to the CarGurus index, the average price of a used car is $30,886, up 0.2% in the past 90 days and 10.5% year over year.
“Used car prices over the past 18 months have actually outpaced cryptocurrencies,” he added. “It’s one of the best investments people can have.”
Bianco expects the Inflation Reduction Act, which was passed by the Senate over the weekend, to have negligible impact if enacted.
“A lot of this stuff doesn’t kick in for a few years,” Bianco said. “In a world where we want to know what the Fed is going to do in September and when inflation is going to peak, these are 22, 23 stories. Those are going to continue to dominate the markets.”
The House is expected to vote on the legislation on Friday.
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