The Fed’s rate hikes could be about to end
Core Consumer Prices Rise by 4.7% in November and Implications for Inflationary Recovery in the United States, as Monitored by the Federal Reserve Bank of Atlanta
One indicator stands out. In the United States, the Federal Reserve Bank of Atlanta publishes a version of the Consumer Price Index that tracks “sticky” prices. It’s based on a basket of items whose prices change less frequently, such as housing, medical fees and personal care products, and it’s monitored for signs that high inflation could have staying power.
The Commerce Department reported the PCE rose 5.5% in November from a year earlier. That’s lower than in October, when prices rose 6.1% annually.
The core inflation measure, which excludes the volatile categories of food and energy and is the number watched most closely by Fed policymakers, rose by 4.9% on a year-over-year basis in August, up from 4.7% in July. Core PCE surged by 0.6% for the month, a spike from July’s revised 0%.
“It is far too early to declare goods inflation vanquished,” Fed chairman Jerome Powell said two weeks ago, about the stabilization. “But if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months.”
September Inflationary Rises in the European Union: Implications for the Core Index and Retail Prices & the Economic Stability of the Economy
Consumer prices in the countries that use the euro rose at an annual rate of 10 percent in September again reaching the highest level since the creation of the euro more than twenty years ago, according to the European Commission.
Of the 19 eurozone countries, 10 recorded double-digit overall inflation, including the largest economy, Germany, which released its own inflation result the day before — 10.9 percent. Prior to the reunification of the former East and West Germany had seen a high rate of inflation, but this time it was the highest since 1951.
Estonia, Lithuania and Latvia all registered inflation rates above 22 percent. The reason, said Beata Javorcik, the chief economist of the European Bank for Reconstruction and Development, is that the increase in wholesale energy prices has been reflected in retail prices paid by households. The Netherlands, at 17.1 percent in September, up from below 14 percent the previous month, and Slovakia, at 13.6 percent, were also in the unfortunate group of nations with higher-than-average rates.
Prices increased 6.6 percent after stripping out fuel and food — which tend to be volatile and are often removed from inflation readings to allow for a better sense of underlying trends — an uptick in the so-called core index that was also more than economists expected.
Still, Fed officials and Wall Street analysts will be more closely watching the monthly figures, including what happened between August and September. Monthly data gives a better view of prices evolving in real time while the annual numbers only reflect what has happened over the course of a year.
There has been a moderation in inflation over the past few months as supply chain challenges have gone down and consumers focus more on leisure andhospitality.
The Federal Reserve raised its interest rates 4.5 percentage points since last March in an effort to control inflation. Fed policymakers have hinted at two more rate hikes, totaling 0.5 percentage points, in the coming months.
Fed officials have raised rates five times this year, and officials are expected to debate an increase of a half-point or three-quarters of a point at their upcoming meeting. The case for a bigger increase will be helped by the new figures.
The food at home index, a proxy for grocery store prices, increased 0.7% in September from the month prior and a stunning 13% over the last year, according to new government data released Thursday.
On the ground, travel got more expensive, as well. Gasoline prices were up 10.1% for the year, but are now off their record highs. Russia’s invasion of Ukrainian was a major reason for the rapid rise and fall of gas prices.
“The environment clearly is still very inflationary with a lot of supply chain challenges across the industry,” Pepsi
(PEP)CEO Ramon Laguarta said on an earnings call Wednesday. The company’s prices increased 17% annually.
Meanwhile, demand is high. Consumers may be able to pull back on some discretionary items, but they have to eat. A number of people are still working from home, and are consuming more of their meals at home.
Walmart said that high levels of food inflation are causing customers to not be able to purchase discretionary goods.
Rising food and energy costs drove UK inflation back to a 40-year high in September, but it could be nearing a peak as cash-strapped households pull back on spending amid broader economic turmoil.
Annual inflation in the United States slowed to 6.4% in January, easing for the seventh consecutive month. In Europe, inflation is running at 8.5% after peaking at 10.6% in October. In the United Kingdom, which faces weaker economic prospects than its peers, the rate of price increases is also falling: In January, annual inflation dipped to 10.1% from a recent high of 11.1% this past fall.
The return to double-digit inflation will be worrying for the Bank of England, which meets on November 3 to set interest rates. Governor Andrew Bailey said that a stronger response might be required to deal with price rises.
The central bank is considering whether to raise its inflation forecast due to rising prices against government U-turns on tax cuts.
Energy prices remain a big unknown, however, after Hunt said Monday that the government will universally cap prices only until April. A new spike in energy bills for many households could come about thanks to more targeted support, which could cause inflation once again in the spring.
Goldman said that inflation could rise to 11.9% year-over-year in April if the government does not raise taxes.
Wage growth continues to decline in Britain as prices rise. According to the ONS, average pay dropped between June and August, when inflation is taken into account. The decline of 3% in real wages between April and June is the biggest drop since records began 20 years ago.
The UK government, meanwhile, is debating cuts to public spending in order to get a handle on its growing debt load, piling more pain on households at a difficult moment.
Responding to the latest inflation figures, Hunt said the government “will prioritize help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.”
The Stickiness of Inflation: How the U.S. Economy and Economy has Famed during the September 17 – 24th Pandemic
According to the ONS, price increases in September were partially offset by a fall in the cost of gasoline and airline tickets. While crude oil prices are falling in September, the costs facing businesses are still at a historically high rate.
In the European Union and the United Kingdom, the recent slump in global energy costs is expected to lead to a drop in inflation later this year. Thanks to aggressive stockpiling, a pullback in demand and relatively mild weather this winter, the region has dodged nightmare scenarios of energy shortages, which could have propped up prices.
Policymakers’ initial instinct during the pandemic was economic preservation. Relief measures were enacted to make sure Covid wouldn’t set off a deep recession. In some cases, they might have gone too far: The point of stimulus packages is to elevate spending and demand, keeping the economy afloat. If supply can only keep up with demand, prices will go up.
The impact of global catastrophes like the swine flu made it hard for central banks to respond quickly. Inflation increased by itself.
This year we have been talking a lot about inflation. The rising cost of food, pricier oil, supply-chain turmoil, Russia’s war in Ukraine, growing wages and a lingering labor shortage all contributed to higher prices that touched almost every part of our lives.
The U.S. had the highest inflation rate in the world until Russia invasion of Ukraine because of overstimulus and central bank apathy.
If it weren’t for the war, the U.S. could still be worse off than the others. America still has a higher core inflation rate, which excludes food and energy prices, than many of its peers — indicating it has deeper problems than the global events that are primarily driving up food and energy costs. The labor market remains hot, with an abundance of job openings for people who have been out of work. These are the problems that the Fed is trying to address without causing a deep recession (as I explained in this newsletter).
It’s another sign of the stickiness of inflation that politicians and policymakers are facing all over the world. That encouraging central bankers to raise interest rates is an attempt to get inflation back down in order to deter price increases from becoming entrenched in the economy and to ensure that inflation does not get out of hand.
It’s too soon to declare victory over inflation, but from gas to chicken to big-screen TVs, there are, increasingly, signs that inflation’s grip on American pocketbooks may be loosening.
Consumer Prices and the Job Market: Inflation, Walls, and Rental Costs in the Landau-Dependent Continuum Energy Market
After spiking above $5 a gallon for the first time ever in June, gas prices have plunged. The average price of regular gasoline has fallen to an 18-month low of $3.10 a gallon, though it has crept higher recently to about $3.22 a gallon.
Shoppers scored major deals over the Thanksgiving shopping period amid widespread price-cutting. Online inflation fell 1.9% in November, the largest year-over-year drop in 31 months, according to Adobe Analytics.
As retailers awash with excess inventory are expected to keep marking down items after the year is over, consumers are likely to shift from buying couches and clothes to spending on experiences, such as going on a cruise, or going on a vacation.
Commodity and shipping costs are declining as global supply chains work themselves out. Rent and automobiles prices are rising but at a slower rate. Chicken prices dropped sharply after hitting a record high this summer. And according to real estate site RealPage, apartment rents have fallen for three consecutive months.
Last year, economists thought that global shipping and manufacturing snarls would soon end, consumer spending would shift away from goods and back to services, and the combination would allow supply and demand to come back into balance. Slowly that has happened. It has also taken longer to translate into lower consumer prices than some economists had expected.
There are a lot of different types of service inflation that are related to the job market. While paying employees is usually the biggest cost of doing business for companies, it’s not the only one. When workers are scarce and wages are climbing rapidly, businesses are more likely to raise their prices to try to cover heftier labor bills.
That means that today’s very low unemployment and abnormally rapid wage growth could help to keep price increases faster than usual, even though the job market wasn’t a big driver of the initial burst in inflation.
Fed policy could come in there. If a customer is willing to pay more, companies can only charge more. The Fed can stop that chain reaction by lifting interest rates to slow demand.
Consumer prices last month were 6.4% higher than a year ago, according to a report from the Labor Department Tuesday. That’s the lowest yearly inflation reading since October.
The inflation figures were released Tuesday by the Labor Department, just as the Federal Reserve prepares to raise interest rates for the seventh time in nine months on Wednesday.
The Rise and Fall of Food and Services: Inflation, War, and Salamanca Production in the Salinas Valley during the First Four Years of World War II
But gasoline prices dropped 2% between October and November and gas is now selling for less than it was a year ago, before Russia’s invasion of Ukraine.
If you want a box of romaine lettuce on the east coast, it can go for up to $30 per box, but cost up to 100 dollars because of high transportation costs.
An insect-borne virus curbed lettuce production in the Salinas Valley this fall. Diesel costs five dollars a gallon, which is more than double the gasoline price.
The average cost to rent a home in April was more than double the price a year ago, according to a data company. The annual increase had fallen to around 10% because of a softer demand.
“People are now, as a result of high rent, doubling up again, so we’re seeing an increase in the number of people moving in with roommates,” said CoreLogic economist Selma Hepp.
Rents are reflected only gradually in the official inflation data, so the slowdown in housing costs is not yet fully evident in the consumer price index.
The Fed chairman is less confident about the price of services, which includes everything from restaurant meals to haircuts and which is largely driven by the cost of labor.
Breakfast is now a lot more expensive than it has been in the past. Eggs were an inflation high-flyer, largely because of a historic bird-flu outbreak. butter and milk prices increased because of low dairy production. The war boosted bread prices. At least bacon and avocados are giving us a break. So is pork. How about breakfast and what’s for dinner?
After cooped-up 2020 and 2021, this was the comeback year. Movie theaters and concert venues filled up. Menu prices went up because of big demand and higher food costs. Meanwhile, after massive supply-chain backlogs of home electronics, stores were finally overstocked – just when people kind of didn’t need any more, giving us some of the biggest discounts around.
The year of raises were quickly eaten by inflation. A pandemic-fueled unionization wave continued, though it began to slow. And forget “quiet quitting” – people actually quit jobs and took new (better?) ones at such a rapid pace that nationwide productivity took a hit as workers settled in to new positions (at least that’s the most optimistic explanation).
The Rise and Fall of the U.S. Oil Markets: The Road to Sustainable Development in the 2022 Economy, and Why You Shouldn’t Worry
Ahoy savers! Sure, planes, hotels and automobiles (fuel and maintenance) got more expensive, but have you considered an ocean liner? It may not take you many places in the U.S., but at least the CDC is sort of on board now?
The markets were back in the future. World coal use was sent toward record highs because of the war in Ukraine. The oil companies had a good year thanks to high prices. The metaverse and thecryptoverse had a reality check. The exchange lost a third of its value.
Seen this way, 2022 wasn’t a terrible year overall. The economy grew, supply chain pressures lessened, and fewer people are out of work. As long as you don’t need to buy anything or borrow any money, things are looking pretty good!
The Latest U.S. Market Data Including Prices, Bonds, and Financial Markets: Implications for Inflation and the Economy
The latest data is used to calculate. Most compared November 2022 to November 2021. The prices for cantaloupes are from December. There are union data from October. Stock prices and other market data are different than a year ago. Bitcoin is measured against the U.S. dollar. The dollar value is measured against a basket of currencies using the U.S. Dollar Index.
The Bureau of Labor Statistics’ latest inflation data shows price hikes have slowed to 7.1% over the course of the year, after hitting a peak of 9.1% in June.
Friday’s report also showed that spending continued to rise in November, but at a much slower pace than in previous months. Spending was up in November as compared to the previous month. Personal income increased by 0.4% in November, down from 0.7% in October.
The November PCE report gave a look at the economy in transition. The Fed has implemented a series of interest rate hikes to suppress demand in order to rein in inflation.
However, inflation within the services sector has been a little “sticky,” and not abating as quickly. Friday’s PCE report showed the services index posted a monthly increase of 0.4% – unchanged from October’s rate – and a year-over-year increase of more than 11%, Faucher noted.
He said that the Fed is worried that wage growth may cause inflation to continue because of the rapidly reversing housing costs.
“The Federal Open Market Committee will continue to increase the fed funds rate in early 2023 until it becomes more apparent that the job market is cooling, and wage growth and services inflation are slowing to more sustainable paces,” he added.
Manufacturing, Transportation, and the Economy: Declining New Orders in the First Three Months of the November 11 Wall-to-Leading Wall
A separate Commerce Department report released Friday showed that new orders for manufactured goods tumbled 2.1% in November, the biggest monthly drop since the onset of the pandemic.
Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. New orders do not increase if transportation is excluded.
“Core durable goods orders slowed but did not contract, reflecting growing unease about the economy,” Diane Swonk, chief economist for KPMG, tweeted Friday after the report’s release. The prelim reading for December suggests that manufacturing will be contracting at the end of the year. A cold winter expected for the manufacturing sector.
The final December reading for the index of consumer sentiment came in at 59.7 in December, up slightly from a preliminary measurement of 59.1 and November’s final reading of 56.8, according to data from the university’s Surveys of Consumers.
The recent easing of inflation was applauded by consumers, according to the director of the Surveys of Consumers. Consumers have yet to make a decision about whether the trends will continue or not.
She stated that the outlook for the economy may have improved but is still relatively weak. The growth in incomes and labor markets will determine the future of robust consumer spending.
The Conference Board Consumer Confidence index, which is a measure of how people feel about the economy, jumped to its highest measurement in nearly five years earlier this week.
Consumer Product Prices Decelerated in the Pre-Collapse Period, Revised by Inflation and Crash in the U.S.
In the year that ended in November, major electronics got cheaper, including phones, TV and computers.
Earlier in the year, chains like Best Buy and Walmart stock up on stuff, anticipating supply chain shortages and what they projected to be robust consumer demand. But their plans were derailed by inflation and slumping consumer confidence.
Demand for air travel rebounded after falling to a all-time low in 2020. Plane ticket prices increased by 36% in a year.
Delta president Glen Hauenstein said that the spike in demand was unprecedented, and that it had been caused by the Covid-19 variant.
Travelers came back in full force in April, May and June thanks to high airfare and full planes and that’s when airlines reported record revenue.
The war in Ukraine led to swings in vegetable oil prices that lead to a hike in margarine’s price by almost 50% and a hike in butter’s price by 27%.
grocery prices jumped 12% in the period, though many consumers accepted the higher prices as alternatives to restaurant meals, which grew more expensive, though at a slower clip. Food away from home became 8.5% more expensive in 2022, with many restaurants hiking up menu prices in order to mitigate their own higher input costs.
CNN’s Mark Zandi: Is the Fed Ready to Hit The Gas on the Economy? A Preliminary Analysis of the Economic Recovery and the Fed’s Expectations for 2020
Hiring remains surprisingly resilient. The economy added a robust 263,000 jobs in November, and the unemployment rate is just 3.7% — down dramatically from nearly 15% in the spring of 2020.
New numbers published last week show first-time applications for unemployment benefits edged up to 225,000. It is almost exactly where it was a year ago, just before recession fears began to emerge.
Mark Zandi, the chief economist for Moody’s Analytics, told CNN on Thursday that he is optimistic that the economy could avoid a recession. Mass layoffs are not likely to stop consumers from spending and the economy from contracting.
If the Fed doesn’t already do that, then there’s a danger that they will overdo it, raising rates so high that it will cause a recession.
Powell made it clear that the Fed wouldn’t be near ready to hit the gas on the economy when it cut rates. Remove the foot from the brake is a positive.
Steven Kamin is a senior fellow at the American Enterprise Institute, which studies international macroeconomic and financial issues. He served as director of the international finance division of the Federal Reserve from 2011 to 2020. His opinions are not reflected in this commentary. View more opinion on CNN.
Inflationary Predictions and Implications for the Rate of Interest Rate Increases During the First Three Years of the Fed Pre-Pendemic
The Federal Reserve should be slowing its rate hikes because the level of interest rates necessary to slow inflation is not known. The Fed has economic models that can provide some guidance on how high to raise rates, but these models proved unable to predict the inflationary surge that materialized in 2021, and their implications for the optimal level of interest rates must be taken with more than a grain of salt.
Measures of inflation expectations, both those derived from financial markets and those based on household surveys, remain above pre-pandemic levels, but have moved down since earlier last year. Perhaps more importantly, since the beginning of the pandemic, wages have barely kept up with rising prices, whereas labor productivity has risen about 4%.
Workers didn’t receive compensation for increases in productivity. The Fed Vice Chair has acknowledged that the productivity share of income has declined over the last two years, while corporate profits seem to be near postwar highs. This suggests that wages may go up more quickly than prices as workers regain their share of corporate income. Firms should be able to absorb wage hikes by reducing profit margins, so the Fed shouldn’t have to work harder to reduce inflation.
“There is the expectation that it will go away quickly and painlessly, and I do not think that is a guarantee,” Federal Reserve chairman Jerome Powell said last week. “The base case for me is that it will take some time and we’ll have to do more rate increases and then have to look around and see if we’ve done enough.”
Gas prices have dropped during the first two weeks of February, but AAA warns that drivers can’t count on falling prices at the pump to keep inflation in check.
“We are entering the higher-priced spring and summer driving season, and so drivers should brace for that,” said Devin Gladden of AAA. “It will likely be a volatile year given how much uncertainty remains around the economy.”
Last year used car prices fell by 8.8%, and the rate of inflation fell by 1.9% in January. But signals from the wholesale market suggest used car prices could jump again in the coming months.
“The bottom line is inflation is still a problem,” said Torsten Slok, chief economist at Apollo Global Management. He showed that price rises could be persistent.
The consumer price index known as the “sticky-price inflation” for January was 6.7%, it’s highest level in over 30 years, and “Flexible-price inflation” pulled back sharply.
There were two data points that came in Wednesday and Thursday that increased investor anxiety. Retail sales jumped by 3% in January compared with the previous month, the largest increase in almost two years. That’s a problem, given that getting Americans to spend less is crucial to the Fed’s anti-inflation campaign.
“We’re still in that really uncertain zone,” May said. “We know inflation will end the year lower than it is now and, in all honesty, quite lower, but the speed of the fall will depend on a lot of factors that are quite hard to predict.”