El-Erian Thinks Potential Fall In December Headline Inflation Won't Signal End Of Price-Rise Problem

Allianz chief economic adviser and noted economist Mohamed El-Erian believes a potential fall in December headline inflation will not mark the end of the current price-rise problem.

“Consensus is for Thursday’s U.S. CPI report to show a fall in headline inflation to 6.5% in Dec. As important as this moderation is, it won’t signal the passing of the inflation problem. For that, both core and the mix of price rises need to point to a lot less inflation stickiness,” El-Erian tweeted.

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Fed Comments: Federal Reserve officials have said Thursday’s inflation data will help them decide whether the pace of interest rate hikes could be slowed to just a 25 bps increase instead of the larger increases seen for most of last year.

Atlanta Federal Reserve Bank President Raphael Bostic told reporters on Monday if U.S. consumer price data confirms the cooling seen in the most recent monthly jobs report, he would have to take a quarter-point increase "more seriously and to move in that direction."

In the absence of any further hawkish commentary from Federal Reserve Chair Jerome Powell on Tuesday, U.S. equity markets recorded gains. The SPDR S&P 500 ETF Trust SPY closed 0.7% higher, while the Invesco QQQ Trust Series 1 QQQ gained 0.85%.

El-Erian also cited his opinion piece in the Financial Times, where he argued inflation is likely to remain stubborn near 4%, be less sensitive to interest rate policies and expose the economy to a higher risk of accidents induced by further policy mistakes that undermine growth.

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Photo by IMF on Flickr