Renowned economist Mohamed El-Erian believes inflation will come down by the end of the year but “will be sticky.”
“I’m looking for a core CPI in the 4.5% to 5.5% range, so well above the 2% target of the Fed,” the chief economic adviser of Allianz said on Influencers with Andy Serwer (video above).
The latest monthly Consumer Price Index (CPI) reading came in at 9.1%, the highest level since November 1981. The reading for July CPI will be released on Wednesday.
“What I'm most worried about ... is the collateral damage that's gonna be associated with inflation coming down because the Fed has been so late in responding,” El-Erian said.
In 2021, Federal Reserve Chair Jerome Powell said inflation was transitory, a word which he later acknowledged should be retired as monthly inflation reads kept increasing. Since then, the Fed has raised the rates by 75 basis points in both of its last two monthly meetings.
Energy and food prices have been the biggest drivers of inflation. Oil prices have come down considerably from their peak earlier this year. This week, West Texas Intermediate (CL=F) futures fell below $90 per barrel for the first time since the Russian invasion of Ukraine. Lower oil prices should help alleviate inflation.
“Energy and food, in particular, are gonna be much weaker drivers of inflation, so the headline number is gonna come down,” said El-Erian. “But worse, the core number is going to stay stubbornly high. And that just speaks to an inflation process that has become more entrenched and has become more broad based in our economy."
Ines is a markets reporter covering equities. Follow her on Twitter at @ines_ferre