Sep 20, 2022

A Long Plateau

Weekly Market Commentary

Chatter that the rate of inflation was on a downward path appears to have hit a snag after the August release of the Consumer Price Index (CPI).

Following July’s unchanged reading in the CPI, prices rose just 0.1% in August thanks to another big decline in gasoline prices, according to the U.S. Bureau of Labor Statistics. But the increase topped the consensus forecast among analysts of a 0.1% drop per MarketWatch.

The core CPI, which strips out food and energy, jumped 0.6%, double the consensus of 0.3%. In July, the core CPI rose 0.3%.

On an annualized basis, the CPI slowed from 8.5% in July to 8.3% in August, while the core CPI accelerated from 5.9% to 6.3%.

Core inflation isn’t rising on a monthly basis, but it isn’t slowing either. As the graphic below suggests, it’s been a long plateau.

Breaking down the numbers, core inflation averaged 0.54% per month over the last 11 months and has run between 0.5% and 0.6% in 8 of the last 11 months. In contrast, the core CPI averaged 0.15% per month between 2010—2019, according to the St. Louis Federal Reserve.

It doesn’t seem to matter that wholesale price increases have slowed (U.S. BLS), and, thanks to the strong dollar, the price of imported goods has actually fallen (U.S. BLS).

Final Thoughts

Aided by falling gasoline prices, the headline CPI probably has peaked, but bringing inflation down has been challenging.

The unexpectedly large rise was met by a selloff on Tuesday, as it raised the idea that the Fed will have to hike rates longer and higher than expected. Higher and longer also raises odds the economy could fall into a recession, which added to last week’s downbeat mood.

According to Fed rhetoric, a slowdown in inflation isn’t enough. The Fed wants “compelling evidence that inflation is moving down, consistent with inflation returning to 2% (annually).”

We may have a different conversation next year and Fed talk could shift, but today’s remarks from the Fed show it will continue to tighten until its goals are achieved.

If you have questions or would like to discuss any other matters, please let me know.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

The Fed Delivers a Long-Awaited Rate Cut

To virtually no one’s surprise, the Federal Reserve slashed the target on its key interest rate—the fed funds rate—at the conclusion of its meeting on Wednesday. The only question regarding the decision was whether the Fed would cut by a quarter point (25 basis points [bp]; 1 bp = 0.01%) or 50 bp. They opted for 25 bp and a new range of 4.00-4.25%.

Last CPI Tees Up Fed Rate Cut

The only thing that might have been standing in the way between the Federal Reserve and a rate cut this week was last Thursday’s release of the Consumer Price Index (CPI). While the inflation figures weren’t particularly soft, August’s data didn’t reflect a sharp rise in prices either, all but guaranteeing that the Fed will move at Wednesday’s meeting.

No Hire, No Fire Economy

For starters, the title is a simplified five-word summary of the labor market. Recall that last week, we explored the low level of layoffs. This week, we shift the focus to hiring trends. But first, let’s take a closer look at the numbers from the latest jobs report.

Initial Claims and Economic Signals: What Investors Watch

Initial claims for unemployment insurance measure the number of people filing for unemployment benefits for the first time. The data is released weekly, making it one of the most up-to-date indicators of labor market conditions. It is a key economic indicator because it offers a real-time snapshot of the health of the labor market.

Heavy Data Week Offers Mixed Picture

Last week was packed with economic developments, as reports poured in from all directions. We saw the release of second-quarter Gross Domestic Product (GDP) figures, the broadest measure of goods and services produced, alongside the July jobs report.