This week, we got key inflation reports that came out earlier midweek, and these are the last inflation pieces of data that are going to come out before the Fed meets next week. We are now in the quiet period where the Fed doesn’t speak ahead of their meeting.
On the consumer side, we got CPI which is Consumer Price Index, and that measures how the prices of goods and services are moving, either whether they’re increasing, how fast they’re increasing, or whether they’re decreasing, which would be deflation, and that is definitely not happening. So, the whole talk about the Fed is that inflation is moderating, meaning not that we’re going to see prices go down in really anything, just that we’re not going to see them go up as fast as they had.
August CPI came out. The headline number rose 0.2% month-over-month, and the core rate rose 0.3% month-over-month, with the former as expected and the core, one-tenth hotter than what was expected. So, the year-over-year figures were in line with what was expected: 2.5% year-over-year for headline inflation. Core inflation is still pretty sticky at 3.2%.
The fly in the ointment, or the problem child for core inflation is housing costs, and we have housing costs just continuing to skyrocket in this country, primarily due to a lack of inventory and all of the money that was injected into the economy during Covid. Owners’ equivalent rent was up 0.5 percent month-over-month and 5.4 percent year-over-year, so that’s what’s, you know, pulling that number, keeping that number a little bit elevated. Rent of primary residence saw a 0.4 percent month-over-month and a 5% year-over-year increase, and blended rents are still rising by 2 to 3 percent. Now, rents are expected to continue to moderate. They were rising a lot faster than that, but what happens when you try to get all of the illegal immigrants, somewhere between 10 and 30 million, nobody really knows exactly how many, when you try to get all of those immigrants into permanent housing, and we already have a shortage of housing.
The other major contributor to CPI was medical care. While prices did fall, they did fall for a second month by 1 tenth month-over-month, though they are still up 3% year-over-year. Insurance prices are still out of control. On the auto insurance side, they rose by 0.6% month-over-month, and year-over-year, that increased to sixteen point five percent. Vehicle maintenance prices were also up 0.6% month-over-month, up four points one percent year-over-year. Tha’s services. On the goods side, core prices fell for the third month, down to 1.9% year-over-year. Goods deflation continues offset by persistent gains in services. So, we have goods kind of moderating; we have services still going up.
On the supply side, August PPI, so now this is Producer Price Index. This refers to the input of goods that go into the products that consumers end up buying. PPI was about in line with expectations when we include the July revisions. The headline rate for PPI was up 1.7 percent year-over-year versus 2.1 in July. The core rate grew by 2.4 percent year-over-year versus 2.3 percent in the month before. Energy prices fell almost a percent month-over-month and are down eight point four percent year-over-year but still much higher than they were three years ago. Goods are coming down, while service continues to see upward inflationary pressures, same line here, and the market tends to care more about CPI than they do about PPI.
The weekly employment report that we got out just yesterday: initial jobless claims totaled two hundred and thirty thousand, four thousand more than expected. To discern the trend, we tend to look at the four-week moving average, which tends to buffer that week-to-week volatility. It came in at two hundred and thirty-one thousand, ticking one thousand higher than the two hundred and thirty thousand in the week before. Continuing claims came in at 1.85 million as forecasted, but up five thousand week-over-week. The bottom line for employment: the pace of firings is still pretty modest, but it’s on the rise, while the rate of hirings remains more muted. The results in unemployment are continuing to push higher.
So far this week, the markets were not spooked by the presidential debate nor by the inflation numbers. The market pushed higher week-to-date, so really before the market opens on Friday, the S&P is up 3.02%, the DOW’s up 1.37%, and the NASDAQ is up a little more than 4%. Looks like that trend is going to continue to hold today. The pre-markets are pretty well in positive territory; at least the Dow and the S&P are, and the NASDAQ is just barely negative but close to the flatline. So, the markets seem undeterred about the data and what’s coming because they think that rate cuts are coming next week, and I would agree they’re coming; it’s just sort of up in the air as to how much.
Next week, the data that’s on deck is retail sales. We get retail sales on Tuesday, and this is going to give us another clue as to how well the consumer is holding up. It’s the last real piece of economic data that the Fed will have as they go into their deliberations about what they will do with interest rates. And of course, the FOMC rate decision comes out on Wednesday, I believe it is, with an updated summary of economic projections. So, you know, the idea is that the odds are now there’s a 50-50 chance of a 25 basis point cut or a 50 basis point cut for the Fed, which rose dramatically after the data this week. So, the market wasn’t really deterred with the inflation data, but it seems like economists are really expecting the Fed to read more into what’s being said about the inflation data.
Become a wiser steward of your investments
A Financial Issues Partnership provides rich online tools and resources to give you financial wisdom, strategies, and tools to effectively self-manage your investment portfolio using Biblically-responsible principles.
