Elevated CPI Report May Lock In 0.75 Percentage Point Hike In November

(CTN News) – For September, the Elevated CPI inflation report showed a month-over-month increase of 0.4%.

As with the recent spike in wholesale prices for September, inflation is not declining at the rate the Federal Reserve (Fed) would prefer.

The Fed is likely to reiterate its commitment to a 0.75 percentage point increase on November 2.

Inflation continues to exceed target, and the labor market is in reasonable shape, allowing the Fed to act aggressively.

Here is the bad news

Inflation should move closer to the Fed’s goal of 2%. Inflation for today translates into almost 5% annualized. That is well in advance of the Federal Reserve’s target.

Additionally, when food and energy are removed from the definition of inflation, year-over-year inflation exceeded the recent peak from March. Food and shelter, which are large parts of the Elevated CPI inflation series, continue to rise sharply in price.

Good news

However, there were some early positive signs in the data. As expected, energy prices continued to decline, as did clothing and used car prices.

The latter items contribute relatively little to the overall inflation number, but any price declines in some areas will be welcomed.

I am looking forward to

Furthermore, the market Elevated CPI may find some comfort in the fact that inflation is a somewhat lagging indicator.

Inflation data has not yet reflected a decline in house prices, and house prices remain high in most regions on an annual basis.

Early indications suggest that the cost of shelter may eventually soften in the future. Inflation is heavily influenced by the price of shelter, so it is likely that falling house prices will have some impact on taming inflation.

As well as freight costs, they appear to be declining, although again there is not much evidence of this in the current Elevated CPI series.

After recent OPEC+ production cuts, energy prices have risen again in October, so far. Therefore, the benefit of Elevated CPI falling energy prices, which has helped the inflation numbers in the July-September period, may be coming to an end.

Of course, some of this is due to a resurgence in energy prices, but a return to those types of extremely high inflation rates would be a real concern for the Fed and markets,

And would provide little evidence that inflation has been contained. In that event, we may see further rate increases from the Federal Reserve in 2023.

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