Reassured by the sharp drop in oil prices – a barrel is currently trading at around $87 versus over $120 in mid-June – investors wanted to believe that the downward trend in US inflation would continue into August. However, they were very disappointed in the end. Compared to a year ago, the cost of living slowed to 8.3% versus 8.5% in July, while expectations had forecast 8.1%. Worse, core inflation – which excludes energy and food – rose 6.3%, the highest level in four decades, scheduled for March, and an acceleration from 5.9% the previous month. – Expectations are set at 6.1%.
This says a lot about inflation now well entrenched and affecting basic commodities, such as food, whose annual growth now stands at 11.4% and even 13.5% if we exclude restaurant prices as well as energy (+23.8%) and electricity (+15.8%), Housing (6.2%), Healthcare (+5.6%). Thus, high consumer prices are widespread and hurt a lot, especially since the real wages of Americans are simultaneously losing 2.8% per year, and working hours are also decreasing. Altogether, the loss in terms of wages was 3.4%.
In a situation like this, which is characterized by rising prices, falling wages and mounting debt burdens with rising interest rates, American households have a lot to worry about, and so does the global economy. Facing the inevitable European recession, and setbacks for China and emerging countries hit hard by rising interest rates, the United States has taken a position as the last bastion that can allow the global economy to avoid a recession. However, in the face of this inflation data, the US Federal Reserve will not have many options and will have to raise interest rates again. This greatly increases the chances of a hard landing for the US economy, which will not help to affect the rest of the planet.
butAnd the let’s continue To invest in the United States, in both the stock and bond markets. The reason is simple: if the US is clearly at risk of recession, it has the resources (energy, technology, finance) to recover as quickly as possible, which is not necessarily the case elsewhere. Therefore, bonds and stocks, depending on the profile in which you identify yourself, remain among our investment strategies.
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