Monday 15 August 2022 01:25 AM Morgan Stanley chief economist warns cost-of-living crisis is far from over ... trends now

A top economist at Morgan Stanley has warned that it is too soon to see the slight reduction in interest rates as a sign the economy has turned a corner, insisting that it was 'way premature' to celebrate.

On Wednesday the government released the latest consumer price index report, which showed inflation hit 8.5 percent for the month of July - down from 9.1 percent in June.

On a monthly basis, prices were unchanged from June to July - the smallest such rise for more than two years.

Falling gas prices were credited for last month's relative decline from June, but this was driven partly by fewer Americans heading to the pumps or filling up less often.

Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, said it was 'a head fake' to believe that the worst was past.

'The idea that inflation may have peaked, in our humble opinion, may be correct directionally, but may also be a little bit of a head fake with regard to this idea that, hey, game over, problem solved, the Fed has conquered the day, and Fed credibility is back and all of that,' she said, speaking on Friday on Bloomberg's What Goes Up podcast.

She said that 'a lot of things have gone right' regarding global demand for energy slowing, and supply chain issues easing, which has helped bring down the soaring cost of food.

'But for the markets to be celebrating as they have been since the middle of June, our guess is we're way premature for that.'

She said she expected Jerome Powell, the chair of the Fed, to be happy at Wednesday's data, and said June's inflation of 9.1 percent appeared to be a peak. But, she warned, inflation was still excessively high.

'If I'm Jerome Powell I probably do have a smile on my face and I'm glad that energy prices went my way,' she said.

'But let's get real here, people.

'I mean, 8.5 percent on your headline and a

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