Tuesday, October 4

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

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 provide 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 contains 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.”

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