Inflation is rising further.

According to the Federal Reserve's favorite measurement standard, inflation in the United States has risen to its highest level in 40 years. After rising 6.3% in May, the Personal Consumption Expenditures Index (excluding food and energy) rose 6.8% in June, while it was 4.8% in June and 4.7% in May. Month-on-month, prices rose 0.6%, compared to a rise of 0.3% in each of the previous four months. This news was released after the Federal Reserve's interest rate decision, increasing the likelihood of another 0.75% rate hike on September 25th. Of course, there are several inflation data points that need to be collected before the next FOMC meeting on September 25th, but the comparative foundation of the United States is unfavorable in the coming months, which means that inflation may rise further.

Another good indicator reflecting the potential inflation trend is the rising wages. In the second quarter, wages increased by 5.7%, compared to 5% in the previous two quarters. The wage increase will ensure that inflation does not decline so quickly. The labor market remains tight, and when it comes to wage demands, workers primarily rely on next year's inflation expectations (rather than inflation expectations for the next ten years based on TIPS, with the Federal Reserve having inflation expectations as high as 25%). These predictions for next year's inflation are often based on the current inflation. For workers, energy prices (up more than 40% in a year) and food prices (up more than 11% in a year) are particularly important.

In the eurozone, inflation rose from 8.6% in June to 8.9% in July, also due to a 40% increase in energy prices and a 10% increase in food prices. The core inflation rate in Europe is 4%, which is twice the target of the European Central Bank. This increases the possibility of the European Central Bank raising interest rates by 50 basis points in September.

Inflation is a global phenomenon. In as many as 80% of countries, inflation rates exceed 6%. Rising energy and food prices affect everyone. Supply chain disruptions are also a global phenomenon. The difference lies more in the way each country calculates inflation. Compared to many other countries, demand plays a more important role in the United States. This also makes it easier for the Federal Reserve to control inflation. Through monetary policy, the Federal Reserve can influence demand, but not supply. The Federal Reserve cannot print oil or remove food from its balance sheet. In Europe, the inflation problem is mainly on the supply side, manifested in the form of rising energy prices. The European Central Bank may want to influence this by boosting demand, but its impact on energy prices is small. Inflation in Europe is more of a geopolitical issue. The solution here lies in reaching an agreement with Putin. In the United States, the Federal Reserve will have to take additional measures to keep inflation low. Currently, policy rates are still below core inflation by several percentage points. History has shown that in order to exert downward pressure on inflation during an economic downturn (i.e. not a soft landing), interest rates must be raised above core inflation.