The inflation story among economists was, for nearly a year now, that it was primarily a food- and fuel problem. When supply chains improved and gas prices dropped, it was thought that this would reduce food costs which, in turn, could ease economic pressures.
August’s consumer price index numbersHowever, inflation has been tested severely by broadening rises, which indicate that inflation may be stronger and more entrenched than originally thought.
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CPI excluding food and energy prices — so-called core inflation — rose 0.6% for the month, double the Dow Jones estimate, bringing year-over-year cost-of-living increases up 6.3%. Inclusion of food and energy, the index grew 0.1% monthly and by 8.3% in 12 months.
Not as significant, however, was the fact that the cause of the rise wasn’t gasoline. It plummeted 10.6% in the past month. Although headline inflation has been reduced by the drop in fuel prices during summer, this has not stopped people from expressing concerns. inflation will remain a problem for some time.
It was not fuel that caused inflation to rise in August. Instead, food, shelter, and medical services drove the costs up. This tax is a significant one and raises important questions about how and where inflation will go.
“All core inflation numbers were high across all sectors. Mark Zandi (chief economist, Moody’s Analytics) said that the breadth and strength of strong price rises, including new cars, medical care services, rent growth, all were up strongly.” That was what I found most concerning about the report.
New vehicle prices, as well medical services, increased 0.8% each month. Nearly a third (or 0.7%) of CPI weighting was spent on shelter costs. These include rents, and other housing-related expenditures.
Also, food prices were quite expensive.
Food at home, which is a proxy for grocery price increases, increased 13.5% in the last year. This was the highest increase since March 1979. Further straining households budgets is the continued meteoric rise in prices for bread and eggs.
Medical care service costs saw a 0.8% increase in monthly growth, which is the highest monthly increase since October 2019. The month’s veterinary expenses rose by 0.9%, and they were 10% higher than the previous year.
“Even prices for apparel, which tend to decline often, went up a bit.” [0.2%]. Zandi stated that my view was that lower oil prices will stick, and that assuming that they don’t rise, there will be a moderate inflation. Zandi stated, “I have not altered my projection for inflation returning to [the Federal Reserve’s 2% target]But I would say that my forecast is less certain than 2024.
Positively, the prices for items such as coffee, fruit, and airline tickets fell again. It was a good year. survey released earlier this weekThe New York Fed found that consumers were less worried about inflation. However, they expect it to remain at 5.7% next year. Also, there are indications that inflation is on the decline. supply chain pressures are easingThis should at most be disinflationary.
Oil prices could rise
About three quarters of the CPI maintained above 4% year-over-year inflation. This is a long-term trend which has disproved the notion of “transitory inflation” that both the White House and Fed have been pushing.
It is not possible for energy prices to remain low.
According to the U.S., and G-7 countries, they plan to place price restrictions on Russian oil exports starting Dec. 5Possible retaliation could be in store that may lead to price hikes late in the year.
Joseph Brusuelas (RSM chief economist) stated that if Moscow cuts off oil and natural gas exports to the United States, European Union and United Kingdom then it is very likely that oil prices will retest June’s highs and cause regular gasoline to rise well above $3.70 per gallon.
Brusuelas said that although housing is in a recession and in a slump, he believes that price declines won’t be sustained. Housing has “a good one or two to go before that data improves.”
There is still so much inflation. This raises the economic big question. how far the Fed will goWith interest rate rises The central bank will raise benchmark rates, which is what the markets are betting on. at least 0.75 percentage point next weekThis would bring the Fed funds rate up to their highest point since 2007.
Price stability is represented by “Two Percent.” This is their ultimate goal. Quincy Krosby (chief equity strategist, LPL Financial) said that they need to find a way. The Fed’s work is not done. It will be hard to get to 2%. We should see inflation continuing to drop. “But when do they stop?”