Washington’s efforts to curb inflation will fall short particularly 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 might reduce prescription drug prices and maybe a couple of other things,” the Bianco Research president told CNBC’s “Fast Money” on Monday. “But will that bring down CPI? Will that bring down core CPI to a point where we can actually start pricing that in? No, I don’t think so.”
The government releases its Consumer Price Index [CPI], which tracks 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 CPI. On Thursday, the government releases its Producer Price Index [PPI].
Bianco contends peak inflation may still be ahead.
“Inflation is persistent. Is it going to stay 9.1%? Probably not. But it might settle down into a 4%, 5% or 6% range,” he said. “What does that mean? We’re going to need a 5% or 6% funds rate, if that’s where inflation is going to settle.”
There’s no near-term solution, according to Bianco. As long as wage numbers come in hot, he warns inflation will continue to grip the economy.
“Wage inflation, from what we saw in the report on Friday, is at 5.2% [year-to-year], and it’s looking pretty sticky there,” Bianco said. “If we have 5% wages, you can pay 5% inflation. So, it’s not going to go much below wages. We need to get wages down to 2% in order to get inflation down to 2% and wages aren’t moving right now.”
Bianco lists used car prices as a major example of relentless inflation. He believes high sticker prices won’t meaningfully 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’re going to have to walk because that’s the only way you’re going to get a ride right now,” said Bianco.
According to the CarGurus index, the average price for a used car is $30,886, up 0.2% over the past 90 days and 10.5% year-over-year.
“Used car prices in the last 18 months have actually outperformed cryptocurrencies,” he added .”It’s been one of the best investments that people can have.”
Bianco expects the Inflation Reduction Act, which was passed by the Senate this weekend, would have a negligible impact if it’s enacted.
“A lot of this stuff doesn’t kick in for another couple of more 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 ’22, ’23 stories. Those are going to continue to dominate the markets.”
The House is expected to vote Friday on the legislation.