Inflation forecasting – A hit and miss game

Written by Citadel Global Director, Bianca Botes.

With more negative surprises than positive, inflation forecasting has been a tough job in 2022. This week, the United States (US) Bureau of Labour Statistics reported worse than expected inflation numbers for August, which sent markets into a tailspin. In this week’s market wrap, we unpack the drivers of the current US inflation numbers.

Key themes for the week include:

  • Sticky global inflation
  • Positive US Initial Jobless Claims
  • Equities fall on inflation print
  • Oil slides
  • Yuan pulls back on dollar strength

The US experienced an 8.3% year-on-year increase in the headline consumer price index (CPI) during August 2022, which was ahead of expectations of an 8.1% increase. Core CPI, which excludes food and energy items, was up 6.3% from the same time last year, also ahead of expectations. This takes us to six out of the eight headline-inflation prints in 2022 coming out above consensus expectations.

Evidently, inflation has been stickier and more prolonged than consumers and economists would like. However, it is worth noting, that the drivers of inflation have changed somewhat over the year. In January 2022, when headline CPI inflation was 7.5% year-on-year, goods and services were the key drivers of price increases, while energy prices increases were softer. From March onwards, goods inflation stabilised, and energy prices became the lead contributor to the sticky CPI inflation in the second quarter, this owing to Russia’s war against Ukraine.

As crude oil prices started to fall from early June 2022, there was a general sense in the markets that we were past peak US inflation after the 9.1% CPI inflation print in June. Indeed, it seems we are past the peak, but inflation remains stubbornly higher than expectations, due to services prices which are being led by higher rental costs.

Equity markets did not take Tuesday’s inflation announcement well given what it implies about the upcoming US Federal Reserve (Fed) interest rate decision. This led the S&P500 Index to decline by over 4% after the announcement. For most of the year Jerome Powell, US Fed chair, has been unwavering in his rhetoric around brining inflation under control which gives the market more reasons to believe that interest rates and liquidity will continue to tighten.


In the US, the Department of Labour’s weekly US Initial Jobless Claims fell to 213 000, down from 222 000 the week before, beating expectations of 227 000 claims. The latest Initial Jobless Claims numbers were the lowest recorded since the last week of May 2022, and while this is positive for the US labour market, the positive news contributes to the expectations that the US Fed may consider the US economy resilient enough to absorb further rate hikes.

Germany’s Consumer Price Index (CPI) inflation for August was 7.9% year-on-year, in line with expectations. In the United Kingdom (UK), CPI inflation was 9.9% year-on-year in August which was marginally better than the expected 10% and follows from the 10.1% CPI inflation experienced in July. The UK’s Office for National Statistics reported a 0.2% increase GDP on a month-on-month basis against expectations of 0.3% growth, as the cost-of-living crisis weighs on the economy.

In South Africa, retail sales grew by 8.6% year-on-year in July, though the sharp rebound was due to the low base in July 2021 when the country experienced wide-spread riots and looting in the Kwa-Zulu Natal and Gauteng provinces. According to Statistics South Africa, the value of recorded building plans passed by large municipalities declined by 2.7% in real terms between January and July 2022, compared to the same period last year.


Global equity markets were negative this week, with the US tech-heavy Nasdaq Composite declining 3.4%. The S&P 500 was not far behind, sinking 2.8%. The tumble in stocks was largely due to Tuesday’s August inflation report which came in hotter than expected and hurt investor optimism, as they were hoping for lower inflation numbers and a less aggressive US Fed. Tuesday saw the S&P 500 losing 4.3% and the Nasdaq dropping 5.2%, with tech giants Meta losing 9.4% and Nvidia, the hardest hit, down-9.5%. Asian markets fared similarly to their US counterparts, with the Hang Seng losing 2.2% and the Nikkei 225 down 1.2%. European markets performed slightly better with the Euro STOXX50 only down 0.5% and the FTSE 100 losing 0.7.

The JSE Top40 Index was slightly down this week, losing 1.2%, with all the main indices posting negative returns. Financials were the leading detractor, returning a negative 1.3%, followed by industrials which were down 1.2%, and resources which slid 0.9%. Resource companies, Amplats, Glencore and Implats, showed the strongest performance this week, returning 4.3%, 3.5% and 3.4%, respectively. The biggest detractors for the week were Aspen, down 7.0% and Capitec, which fell by 6.5%, an 11-month low, after its trading statement failed to impress. In contrast FirstRand’s results were better received by the market on Thursday, as it recorded a 23% jump in headline earnings and paid the largest dividend in its history, R4.67, which included a special dividend of R1.25. The bank was up around 3.0% on Thursday morning before giving much of that back in the afternoon session.


Brent Crude fell 3% on Thursday, as expectations of weaker demand and a strong US dollar, ahead of a potentially large interest rate hike, outweighed supply concerns. Oil is on course for the first quarterly loss in more than two years, as central banks tighten monetary policy to tame inflation, hurting the outlook for energy consumption. Oil markets have given back all the gains realised in the wake of Russia’s invasion of Ukraine with prices earlier this month hitting their lowest level since January. West Texas Intermediate has slipped to nearly $87 a barrel, while Brent Crude trading below $93 a barrel.


China’s yuan has fallen below a widely watched level against the dollar, breaking ¥7.00/$ for the first time in more than two years. The last time the currency crossed this level, the US president at the time, Donald Trump, accused China of currency manipulation. The yuan has fallen almost 10% against the dollar this year, but this has been the theme with most global currencies after the Federal Reserve began an aggressive campaign of interest-rate hikes. The pound, the euro and the yen are all at multi-decade lows against the Greenback. The US Dollar Index, which tracks the dollar against a basket of six other currencies, traded 0.2% higher on Thursday not far from its two-decade peak of 110.79.

In digital currencies, the popular cryptocurrency platform Ethereum completed a long-awaited software upgrade known as the Merge, shifting to a more environmentally sustainable framework. The Merge landed without any issues and the move is expected to slash its energy costs and is intended to prepare the ground for more use of crypto technology in mainstream finance. The payoff is potentially huge, as Ethereum should now consume 99% less energy. Ethereum developers say the upgrade will make the network, which houses around a $60 billion ecosystem of cryptocurrency exchanges, lending companies, and NFT (non-fungible token) marketplaces more secure and scalable.

The rand is trading at R17.56/$, R17.56/€ and R20.16/£.