Mohamed El-Erian worries about “collateral damage”

Renowned economist Mohamed El-Erian believes that inflation will decline 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 Fed’s 2% target,” Allianz’s chief economic adviser told 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. July’s CPI reading will be released on Wednesday.

“What worries me most … is the collateral damage that will be associated with lower inflation because the Fed has been slow to respond,” El-Erian said.

In 2021, Federal Reserve Chairman Jerome Powell said inflation was transitory, a word he later acknowledged should be retired as monthly inflation kept rising. Since then, the Fed has raised rates by 75 basis points in its last two monthly meetings.

Energy and food prices were the main drivers of inflation. Oil prices have fallen significantly since their peak at the start of the year. This week, West Texas Intermediate (CL=F) futures fell below $90 a barrel for the first time since the Russian invasion of Ukraine. Lower oil prices should help dampen inflation.

“Energy and food, in particular, are going to be much weaker drivers of inflation, so the headline figure is going to come down,” El-Erian said. “But worse, the base number is going to stay stubbornly high. And that only testifies to a process of inflation that has taken root and widened in our economy.”

Ines is an equity market reporter. Follow her on Twitter at @ines_ferre

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