Chart of the week
August’s inflation figures came in below expectations. Headline inflation in August rose by 0.3% compared to July, while core inflation (excluding food and energy) rose just 0.1% instead of the expected 0.3%*. These figures are the lowest since the start of the year, but do they indicate the end of ‘transitory’ inflation? An alternative method of measuring inflation, the median price change, suggests not. The price change that sits right in the middle of the long list of all the price change components reached 0.34%, its highest level since 2007*.
The very high readings from April to June were due to extremes in certain categories such as second-hand cars and, more generally, those goods and services most affected by economic reopenings. As we wrote in July, prices in these categories had returned to normal.
Much of the slowdown in August’s core inflation can be explained by prices in these same categories falling due to a resurgence caused by the Delta variant. In fact, when measures are stripped of extreme readings, inflation is still accelerating.
In the months ahead, the pandemic will continue to distort monthly and especially year-on-year readings. As such, close monitoring will be required to follow the actual trend in inflation rates.
The following opinion was written on September 17, 2021 and is susceptible of changing.
*Sources : Bloomberg, and calculation from Lazard Frères Gestion
As of : September 17, 2021
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