US inflation peak in sight but debate rages over how fast and far it will retreat

WASHINGTON: Sky-high US inflation may finally be approaching a peak as global economic growth sputters and oil and other commodity prices plunge. Now the focus is shifting to how fast and far it will retreat.

Welcome to Round Two in the battle of dueling narratives on the cost of living.

“We’re going to see inflation decline,” said Jeffrey Rosenberg, senior portfolio manager for systematic multi-strategy at BlackRock Inc. “But to what level?” In Round One last year, Team Transitory — captained in effect by Federal Reserve Chairman Jerome Powell — was routed, as inflation soared higher and proved more stubborn than it expected. Now it’s betting on a substantial decline in price pressures occurring without all that much damage done to the economy or the robust labor market.

On the other side, some of the same analysts who sounded the alarm about climbing prices last year are cautioning that Powell & Co. may again be too optimistic. They’re warning that inflation could prove sticky and that it may take an economic contraction and large job losses to bring it down dramatically.

“We’re not likely to get out of this excess inflation situation without a recession,” said former Treasury Secretary and paid Bloomberg Television contributor Lawrence Summers, who was outspoken in criticizing the Fed’s inflation call last year. “We should anticipate something in the range of a couple of years with unemployment in the 6 per cent or above range.”

In contrast, Fed policy makers in June saw joblessness rising to 4.1 per cent in 2024 — just above the level they consider maximum employment — as inflation decelerated to close to their 2 per cent target. The latest jobs report, out on Friday, showed unemployment slipped to 3.5 per cent last month — matching the lowest level since 1969 — as payrolls rose a whopping 528,000. The July consumer price index report, due Wednesday, may have elements supporting both teams. The CPI probably rose 8.7 per cent from a year before, down from a fourdecade-high gain of 9.1 per cent in June, thanks in large part to tumbling gasoline prices, the median forecast in a Bloomberg survey shows. But after stripping out food and energy costs, annual inflation is seen picking up to 6.1 per cent from 5.9 per cent.