Inflation Fell Last Month, But Higher Rates And Job Cutbacks Are Coming

Economists expect Thursday morning’s inflation statistics to curb rising costs.

According to FactSet, experts expect October annualized consumer prices to grow 8%, down from 8.2% in September. The core rate, which includes volatile food and energy prices, is expected to rise 6.5%, down from 6.6% in August.

After a scorching year that drove headline inflation to 9.1%, the highest level in 40 years, consumers may be happy that inflation is slowing. If inflation falls as projected, the Fed may delay rate hikes.

“The data will be studied for any signs of easing in broader price pressures that might allow the U.S. central bank to moderate its pace of interest rate hikes going forward,” RBC Capital Markets analysts Nathan Janzen and Carrie Freestone wrote in a research. In September, almost 90% of consumer price index items, excluding rent, had price rise exceeding the Fed’s 2% inflation target.

Inflation: why? Services.

Early in the pandemic, homebound folks bought commodities. Demand and tangled supply systems caused inflation. After economies reopened, people spent more on services, driving inflation.
Economists predict shelter (including rents) to stay strong. Bank of America analyst Michael Gapen said increased airfares and vehicle and truck rental fees will keep transportation services high.

Brett Ryan, Deustche Bank senior U.S. economist, predicted September new car prices might rise 0.5% due to supply chain delays and dealer lot shortages.

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After four months of decline, energy prices should lead headline inflation, which includes food. Gapen estimates energy grew 1.4%, while Morgan Stanley economist Julian Richers predicts 2.3%.

Ryan also predicted rising grocery prices.

Decelerating prices?

Economists see a few things declining.
Richers predicted a fourth consecutive monthly fall in used vehicle sales, the most since March.

Gapen said stores will lower apparel prices for the third time in four months to remove inventory.

Healthcare inflation: Why aren’t healthcare expenses much higher?

How the pandemic and war changed American prices

Healthcare Economists argue the BLS’s health insurance premium calculation may lower inflation. BLS indirectly measures health insurance prices using financial statements from health insurers in two yearly reports from the National Association of Insurance Commissioners and the California Department of Managed Health Care.
Would the predicted inflation drop slow Fed rate hikes?

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Economists expect a half-point December gain. That would be a decrease from the Fed’s short-term benchmark fed funds rate’s four consecutive 0.75 percentage point increases, now between 3.75% and 4%.

“But there is a large amount of data that are due to be issued between now and the December FOMC meeting, including another employment report (Dec. 2) and two more CPI reports (Nov. 10 and Dec.13),” Wells Fargo economists stated in a report. Incoming data will determine whether the Fed’s policy Committee delays tightening.

How would slower rate hikes affect consumers?
Consumers will suffer despite extra time to organize their budgets.
Even if rates slow, Fed Chairman Jerome Powell has cautioned rates will rise higher than expected.

With Powell pledging higher rates, credit card interest rates reached 18.43%, the highest since the Fed began tracking in 1994. “Consumers are being pressed on many fronts, first by this climate of high inflation, and secondarily by increasing interest rates,” said Michele Raneri, TransUnion vice president of U.S. research and consulting.

TransUnion, which analyzes more than 81 million U.S. vehicle loans, reported Tuesday that 1.65% of loans were at least 60 days late in the third quarter, the most in more than a decade.

Job losses may also raise delinquencies. Former Boston Federal Reserve President Eric Rosengren predicted a recession next year on Tuesday, with the fed funds rate touching 5.5% and unemployment rising to 5% to 5.5%, above the Fed’s median prediction of 4.4%.

Pandemic savings were insufficient. Sal Guatieri, BMO senior economist, said Americans have already utilized approximately a fifth of those savings, and inflation will swiftly deplete the rest.

Guatieri said borrowing costs won’t reduce soon. “No cavalry will save the economy or markets.”

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