https://finance.yahoo.com/news/july-inflation-data-cpi-augus…
The Bureau of Labor Statistics' latest Consumer Price Index (CPI) reflected a year-over-year increase of 8.5% in July, down from the prior month's 40-year high of 9.1%. Consensus economists were expecting last month's reading to show an 8.7% increase, according to estimates compiled by Bloomberg.
Core CPI, which excludes the volatile food and energy components of the report, rose at an annual 5.9%, unchanged from June's figure.
The dip was going to allow me to juggle some covered calls. The good CPI ruined my trading plans for the day. Pre-market up!
The Captain
I don’t think the Fed will think that 8.5% inflation is good.
Wendy
I don’t think the Fed will think that 8.5% inflation is good.
I’m pretty sure the Fed understands that the 8.5% number posted today is based on data that’s a month old.
I’ve noticed that gasoline is more than $1 off it’s peak, and this week Safeway is offering 80/20 ground beef for $1.97/lb.
intercst
I don’t think the Fed will think that 8.5% inflation is good.
Taken in context, it is good. It’s less than the previous month. It’s movement in the right direction. And anecdotal observations around us make it look like things are continuing to improve on the inflation front. We will have to wait for the data to confirm that, of course.
Does it mean the Fed can stop raising interest rates? Of course not. But it is some evidence that the interest rate increases are having the intended effect.
With the current target rate at 2.5%, there’s still a long way to go with the rate increases. I see no reason to expect anything less than a third .75% increase in a row at the next meeting. And probably one more after that. That would get the rate to 4.0%, which is still less than the long term average for the Fed Funds rate. I’d continue to expect more rate increases from there, but perhaps slowing to .25 or .50 moves. All depends on how the economy and inflation react.
–Peter
I see no reason to expect anything less than a third .75% increase in a row at the next meeting. And probably one more after that. i>That would get the rate to 4.0%
Fed seen delivering half-point rate hike in Sept as inflation eases
https://www.reuters.com/markets/us/fed-now-seen-delivering-5…
Traders now expect increases in the Fed’s policy interest rate to top out in December at 3.25%-3.5%.
But…
Fed to raise interest rates to 4% next year, Evans says
https://www.reuters.com/markets/us/feds-evans-sees-rates-ris…
Fed will likely need to lift its policy rate, currently in the 2.25%-2.5% range, to 3.25%-3.5% this year and to 3.75%-4% by the end of next year, Evans said.
The remarks suggest Evans, among the 19 central bankers who set U.S. monetary policy, expects to soon slow what’s been the Fed’s steepest round of interest-rate hikes in decades.
He goes on to state that he expects, “inflation to be closer to 2.5% next year.”
If inflation continues to moderate, as I expect it will, I think traders are likely to be correct and not Evans, even though he is one of only 19 that gets to make that decision.
The absence of forward guidance leaves all of us guessing a bit more than usual, though.
He [Chicago Fed President Charles Evans] goes on to state that he expects, “inflation to be closer to 2.5% next year.”
Apparently, they’re smoking some good stuff in Chicago. That, or he’s the Fed’s designated jawboner. The Fed has a recent (and not-so-recent) history of attempting to talk the rates around a bit rather than actually raising or lowering their target rate. It’s hard to break old habits.
I’ll be thrilled with an inflation rate under 5% during 2023. That 2.5% he mentions is pretty close to the Fed’s long-term target for inflation. How we get from 9% inflation just a couple of months ago to 2.5% in less than a year is a mystery.
I’ve recently pooh poohed some talk of wage inflation getting entrenched, ala the 1970s. But as I’ve thought some more, it may not be as far fetched as I thought. We still have low unemployment and we still have wages rising. That is not good for inflation in the near term.
I suspect that to some extent businesses are eating a bit of that increase in wage costs. Not altruistically, of course, but to stave off talk of an increased minimum wage, specifically, or to keep Congress from meddling in general. The recently passed tax increase on large businesses is also an excuse to increase prices and recoup a bit of that wage increase. More than an excuse, really, but perhaps an excuse to increase prices more than just the tax.
So I think that while the July preliminary numbers might look like a significant improvement in inflation, it may just be a very brief respite.
–Peter
The important thing about the report isn’t the number, it’s the spin “better than expected”.
Apparently, they’re smoking some good stuff in Chicago. That, or he’s the Fed’s designated jawboner. The Fed has a recent (and not-so-recent) history of attempting to talk the rates around a bit rather than actually raising or lowering their target rate. It’s hard to break old habits.
Or they foresee a significant recession, so the “JCs” can revoke all those recent pay increases, and put the money in their own pocket instead.
Steve
How we get from 9% inflation just a couple of months ago to 2.5% in less than a year is a mystery.
Because inflation is measured YOY. In other words, prices don’t have to come back down. They simply have to stop going up (as much). That being stated, prices ARE coming down. Used cars and real estate in particular.
I suspect that to some extent businesses are eating a bit of that increase in wage costs.
REAL (measured against inflation) wages are actually down YTD. You don’t have to eat it if you can pass the cost on to the consumer.
https://www.businessinsider.com/chart-how-inflation-has-comp…
In the last few years the Millennial Generation has as of now doubled its assets. The millennials are a larger generation than the boomers. This bodes for political and economic stability and major shift in our economic imperatives.