The unexpected drop in the jobs report for August of just 22,000 added in the US suggests how the job market stalled for a brief moment. With tariffs being the benevolent factor, could sticky inflation be a factor to consider as well?
Sticky inflation is a period of persistent inflation ineffective to tools such as interest rates and quantitative easing. It can be a silent killer to economic growth and can squeeze living costs out of families.
Today, the producer price index (PPI), which measures the change in production costs, rose by 2.6%, lower than Wall Street’s expectation of 3.3%.
With these lower figures, what is the real picture for the US? It is expected in the upcoming Federal Reserve meeting that rates will be cut. Lower interest rates would help the labour market, but with inflation still high, it could lead to demand-pull inflation with higher consumer spending. With oil prices also stabilising, it means many households will enjoy stable fuel costs, which could be an anchoring point. This would lead to households overspending, fuelling price pressures policymakers are trying to tame.
What to Look out for
The US picture is complicated. With high tariffs and lower interest rates, it is a unique situation to be in. Sticky inflation is a reason for a rate cut by the Federal Reserve, but given the significant effect of tariffs on the job market, there is a feeling that a bigger rate cut could be expected.
Generally, the Federal Reserve serves as a benchmark for the global economy to follow. Since the UK economy is facing a productivity puzzle epidemic and sticky inflation as well, we could see bigger rate cuts. However, central banks mustn’t give the message out that inflation has been dealt with, since it can cause households to create demand-pull inflation.
Your pocket may thank you by the end or betray you by year – end. The picture is not completed yet, but we are slowly getting the idea of what households and businesses will face next year.
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