Core inflation hits 40-year high

CONSUMER PRICE INDEX - SEPTEMBER 2022
The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis after rising 0.1 percent in August. Over the last 12 months, the all items index increased 8.2 percent before seasonal adjustment.

The index for all items less food and energy rose 0.6 percent in September, as it did in August. The all items less food and energy index rose 6.6 percent over the last 12 months. [end quote]

Inflation Sits at 8.2% as Core Prices Hit Four-Decade High

Consumer-price index’s rise eased slightly in September but core index marked biggest increase since 1982

by Gwynn Guilford, The Wall Street Journal, 10/13/2022


The inflation report likely keeps the Federal Reserve on track to increase interest rates by 0.75 percentage point at its meeting next month. It also raises the risk officials will delay an anticipated slowdown in the pace of rate rises after that or signal that they are likely to raise rates to even higher levels early next year than previously anticipated by policy makers and investors…

Core services prices, which tend to persist once they start rising, rose at a one-month annualized rate of 9.9%, the sharpest rate since 1982. …
Nearly all Fed officials expect to raise their benchmark interest rate to between 4% and 4.5% by the end of this year, according to September projections…[end quote]

Forget about TINA (There Are No Alternatives to stocks). By the end of the year there will be reasonable alternatives for risk-averse investors.

In addition to mortgage bonds and CDs on the secondary market, I’m keeping my eye on TIPS. I think the market is underestimating the staying power of inflation.
https://www.treasurydirect.gov/auctions/general-auction-timing/

Wendy

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Jeremy Siegel Warns the Fed Could Drive the Economy Into a Depression

Siegel warned that the Fed’s overreliance on lagging inflation data could set the economy up for a disaster.

“If the Fed waits for the core [inflation] to get down to 2% year-over-year, it will drive the economy into a depression,” Siegel told CNBC on Thursday.

Siegel highlighted that leading inflation indicators are coming down substantially, especially in the housing market, but that won’t flow through official government inflation readings for months, if not years. “When will it get into the core? Months if not years down the line,” Siegel said.

The professor highlighted that the rate of increases in rent prices has slowed dramatically compared to last year, and he now expects housing prices to fall up to 15% from current levels as activity in the real estate market slows due to higher mortgage rates.

Yes, if Powell continues this idiocy he will certainly create some form of disaster. The currency markets already point to extreme deflation.

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I don’t know about deflation happening here.

I went to get my Senior haircut this morning. Mind you, with the lack of hair that I have, I’m only in the chair for about 10 minutes max.

Haircut price went from $16 → $20. That’a 25% increase - Much larger than the increase that I’ll be getting in my SS check starting in January.

Looks like inflation to me.
'38Packard

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So, are we done crying about trillions of paper dollars causing runaway inflation and ruination? I have never heard cries of inflation turn into cries of deflation/depression so fast. How did all that inflation causing fake money turn into deflation because of a few interest rate hikes? NONE of which were severe or unprecedented. These people are brain dead. If they spoke only when they knew something they’d never say anything.

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These people are brain dead

“These”? The quotes are from Jeremy Siegel.

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We haven’t gone out to eat much since the pandemic. We had a favorite farm to table tavern which we returned to for the first time since the pandemic. Their burger went from $16 -20. A 25% increase in two years. Yes, inflation is real.

On the other hand, prices will come down very quickly if everyone is out of work 18 months from now due to the Powell recession.

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I know. he’s just another mouth. Supposedly has a reputation but that means next to nothing as an economist or academic because he doesn’t do anything and cannot be shown to know anything. he is just like the (I supposed they’re…) Bots at Yahoo Finance.

Well, it doesn’t look like the Fed was wrong with their last increase. They raised their rate in September (late in Sept, but still in Sept). And the Sept monthly CPI came in at 0.4% and 8.something % for the last 12 months. So that rate increase doesn’t appear to be a mistake.

I’m beginning to think these complaints about the Fed using lagging inflation data is just a talking point with no substance. Does Siegel have a better tool? Does he have a crystal ball to tell us what the inflation rate is going to be for the last quarter of the year? I’d appreciate him letting us know what that rate is going to be so we can use better data.

It’s also silly focus on just housing. The Fed is looking at core inflation. Housing (and stocks and bonds and a couple of other things) are in a bubble created by near zero interest rates since the 2008/9 crisis. As we get back to more normal rates, those assets are not going to do well. Hopefully, ongoing demand for housing will cushion the increase in interest rates and keep housing at a fairly stable price for a while, although some drop in the short term would not be surprising. But stocks and bonds are likely in for a rude awakening.

We haven’t seen Q3 GDP yet, but the previous two quarters did show small drops in inflation-adjusted numbers. Yes, they’re down, but hardly a depression.

The latest jobs report showed an increase in payrolls along with a drop in the unemployment rate. Again, not a depression. Not even a recession.

I think that’s putting words in the Fed’s mouth. The Fed has certainly said they want to get core inflation down to 2% year over year. But I don’t think they said ever said that they will not respond to inflation going down. That they will keep rates very high after inflation starts to fall.

Keep in mind that any interest rate smaller than the inflation rate is actually stimulating the economy. With inflation north of 8% and interest rates less than 4%, the rate is still stimulative. That even more stimulus than the 0% rate when inflation was at 2%. So of course rates need to continue to rise. The economy does not need extreme stimulation right now.

The more I look at the actual numbers, the less attention I want to pay to Siegel.

–Peter

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It wont be much of a recession the millennials are eating this all up. It wont be deflation. Powell is taking asset prices down to where they should be.

This is like the baby boomers thinking when they go to the nursing homes they want cheap brown labor. The baby boomers have less and less actual say and people are not placed here to be used. Plus our group en mass was always wrong…pollution, equality you name it we were ugly. No one wants to really listen to it any longer. I agree they are not here to listen to nonsense. Asset prices are not suppose to be ultra high as we ring up the national deficits to make that happen.

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in a bubble created by near zero interest rates since the 2008/9 crisis. As we get back to more normal rates

If it was necessary for the most recent 15 YEARS then there’s a pretty good chance that any prior rule of thumb/“normal” is arbitrary or no longer valid. You might as well go back to 1981 and talk about rate decreases for 40 years.

Without some description of what has fundamentally changed in the long run we can’t really describe what is “normal”. It’s quite possible that the only important monetary events were Powell’s stimulus in 2020 and its bizarre extension into 2021.

With inflation north of 8% and interest rates less than 4%, the rate is still stimulative.

It WAS ~8%. It isn’t at the moment.

I hope, for everyone’s sake, that Powell feels that his next annual haircut was a good value for the money.

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What costs for the barber have increased by 25% to justify that price increase? That’s not inflation. That’s price gouging using inflation as an excuse.

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Barbers have bills to pay. Those costs.

But really I wouldn’t know, I cut my own hair with scissors. I have not paid for a haircut in over two years now.

Time and demand far above available supply. Once supply catches up to demand, prices will stabilize. Higher or lower than current prices is something to be determined by the marketplace.

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Lots of people stopped going to the barber/hairdresser during Covid, and a fair number of shops closed. (I have several of those within a few miles of my house.) Now that people are coming out for such services again (see: upsurge in service economy vs. slacking off of retail in 2022) the barber is using “price rationing” to keep his chair full, not over full. And because he can.

I suspect some of those empty hair salons, already outfitted, will be quick to reopen, supply with increase apace, and prices will stabilize, although not to the previous level as other costs have increased, including salaries, supplies, rent, and energy.

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It’s what’s called a “cycle”. I remember an economics book (HS?, College?) with a cartoon showing the boom/bust thing, so nothing new. We had a considerable stretch when the inflation potential of the money supply was sequestered in the stock market. When it moved into the real estate market in 2008, the collapse of the insurance derivative market destroyed enough money to prevent the return of inflation - again as the equity market soaked up the excess. Then came the time of extreme pouring of money into the economy - first by an administration which wanted its success measured by stock market and real estate price performance and which badgered the Fed for lower rates and then by the hemorrhaging of currency into both businesses and the majority of the population during the two years of the COVID crisis.

So, inflation is not unexpected and the “solution” is the drying up of the excess currency in circulation by raising interest rates. Not surprisingly, with the disappearance of “free” borrowing, things will slow down and those businesses who were hiding their warts under the blanket of free money will likely be unduly stretched - as will many investors.

People are shocked, nay appalled, that assets which have been blown into balloons by nearly unlimited free money (such as equities, bonds and real estate) are likely to all deflate at the same time if money starts getting charged for again. This is not an afront, it is not an attack, it is simply a reset to a rational level of expectation level.

Follow the money and follow the Fed.

Jeff

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I realize I’m in the minority here, but I think Powell is doing ok. Not perfect, but ok. I would have preferred him starting to raise rates earlier and in smaller increments. But it’s easy to be a back seat driver.

First, Fed tools are limited.

Second, inflation is a world wide problem at the moment. Annual US inflation is roughly 8+%, approximately the upper mid-range for most countries (although there are outliers on both ends). It doesn’t help the pain many people are feeling, but misery loves company. It’s tough to control dandelions when your neighbors lawns are full of them.

Third, we’re on the tail end of a world-wide pandemic (I hope) the likes of which we haven’t seen for over a century. I thought there was a good chance that shutting down the global economy might lead to a depression.

Fourth, IMNSHO, assets are valued more reasonably. That’s nice if you have cash to put to work.

Growing old mostly sucks, but there are some advantages. I feel like I’ve been there, done that. This too, shall pass. Personally, I love reading about lot of economists predicting the end of times. They’ve been wrong 99.99% of the time before and I expect they will be wrong again.

Riding the waves.

AW

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