Wage inflation, used car prices could jump higher: Jim Bianco

Washington’s efforts to curb inflation will fall short, especially this year, according to market forecaster Jim Bianco.

And he believes this week’s key inflation data will help prove it.

“I don’t see anything that will reduce the inflation rate. There are some things that could reduce prescription drug prices and maybe a couple of other things,” the Bianco Research president told CNBC̵[ads1]7;s “Fast Money” on Monday. “But will it bring down the CPI? Will it bring down the core CPI to a point where we can actually start pricing it in? 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 this Wednesday. Dow Jones expects the number to come in at 8.7%, down 0.4% from June. The headline number includes energy and food, unlike core KPIs. On Thursday, the government publishes its producer price index [PPI].

Bianco claims peak inflation may still be ahead.

“Inflation is persistent. Is it going to stay at 9.1%? Probably not. But it could settle 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 settle.”

There is no short-term solution, according to Bianco. As long as the wage numbers come in, he warns that inflation will continue to grip the economy.

“Wage growth, from what we saw in the report on Friday, is 5.2% [year-to-year], and it looks pretty sticky there,” Bianco said. “If we have 5% wages, you can pay 5% inflation. So it’s not going to go much short of salary. We have to get wages down to 2% to get inflation down to 2%, and wages aren’t moving right now.”

‘If you’re not going to pay extra for that car, you have to go’

Bianco points to used car prices as a prime example of relentless inflation. He believes high sticker prices won’t budge for months due to demand, supply chain issues and chip shortages forcing automakers to reduce features in new cars.

“If you’re not going to pay extra for that car, then you’ve got to go because that’s the only way you’re going to get a ride right now,” Bianco said.

According to the CarGurus index, the average price of a used car is $30,886, up 0.2% in the last 90 days and 10.5% year over year.

“Used car prices in the last 18 months have actually outpaced cryptocurrencies,” he added. “It’s been one of the best investments people can have.”

Bianco expects the Inflation Reduction Act, which passed the Senate this weekend, to have a negligible impact if passed.

“A lot of this stuff doesn’t come in for another couple of 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, those are the ’22, ’23 stories. They’re going to continue to dominate the markets.”

The House is expected to vote on the law on Friday.


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