Tag: CPI

Inflation Cools, but Persists: Rising Costs of Food, Healthcare, and Transportation

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– The Consumer Price Index (CPI) rose 2.8% year-over-year in February, with food, medical care, and auto costs still climbing.
– A dozen large Grade A eggs now average $5.90, up 59% from a year ago.
– Inflation remains above the Fed’s 2% target, likely delaying any interest rate cuts.

American consumers continue to feel the sting of stubborn inflation as essential goods and services remain costly despite an overall slowdown in price growth. The latest Consumer Price Index (CPI) report showed a 2.8% year-over-year increase in February, a slight cooling from previous months but still well above the Federal Reserve’s 2% target.

One of the most notable price hikes continues to be in food costs, particularly for eggs. A dozen large Grade A eggs averaged $5.90 in February, a staggering 59% increase from a year ago. Other breakfast staples like coffee and bacon have also risen, adding to household grocery bills. While some categories, such as fruits and vegetables, saw modest declines, overall grocery prices remain elevated. Eating out is also becoming more expensive, with restaurant prices climbing 3.7% over the past year.

Medical expenses are another growing burden for consumers, with hospital costs up 3.6% year-over-year and nursing home care rising by 4.1%. Home healthcare costs surged 5.6%, reflecting the increasing demand for in-home medical services. Meanwhile, health insurance premiums climbed 3.9%, further squeezing household budgets already stretched thin by higher living costs.

The rising costs extend beyond healthcare and food, impacting transportation as well. Used car prices, which had been easing in previous months, surged again by 2.2% in January and another 0.9% in February. Auto insurance, a major expense for many households, has increased nearly 11% over the past year. Insurers continue to raise premiums as they struggle with underwriting losses, which have persisted for three consecutive years. However, there was some relief at the gas pump, with gasoline prices dipping slightly to a national average of $3.08 per gallon as of mid-March, down from $3.39 a year ago.

With inflation still running above target, the Federal Reserve faces a difficult decision in the coming months. The central bank has signaled that it will likely keep interest rates steady at its next policy meeting, as economic uncertainty surrounding tariffs and supply chain disruptions remains a concern. The Fed’s cautious stance reflects the balancing act it must perform—ensuring inflation continues to cool while avoiding any moves that could trigger a broader economic slowdown.

For consumers, the persistence of high prices across essential categories underscores the challenges of managing household budgets in this inflationary environment. While some areas, such as gasoline and certain food items, have seen modest relief, overall costs remain elevated. Policymakers will continue monitoring inflation trends closely, but for now, Americans should brace for continued financial strain as they navigate these price increases.

January Inflation Data Complicates Fed Plans as Rising Costs Pressure Consumers

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– The Consumer Price Index (CPI) increased 3% year-over-year in January, exceeding expectations and accelerating from December’s 2.9%.
– Rising energy costs and food prices, particularly eggs, contributed to the largest monthly headline increase since August 2023.
– The Federal Reserve faces challenges in determining interest rate cuts, as inflation remains above its 2% target.

Newly released inflation data for January revealed that consumer prices rose at a faster-than-expected pace, complicating the Federal Reserve’s path forward. The Consumer Price Index (CPI) increased by 3% over the previous year, ticking up from December’s 2.9% annual gain. On a monthly basis, prices climbed 0.5%, marking the largest monthly increase since August 2023 and outpacing economists’ expectations of 0.3%.

Energy costs and persistent food inflation played a significant role in driving the index higher. Egg prices, in particular, surged by a staggering 15.2% in January—the largest monthly jump since June 2015—contributing to a 53% annual increase. Meanwhile, core inflation, which excludes volatile food and energy prices, rose 0.4% month-over-month, reversing December’s easing trend and posting the biggest monthly rise since April 2023.

The stickiness in core inflation remains a concern for policymakers. Shelter and service-related costs, including insurance and medical care, continue to pressure consumers despite some signs of moderation. Shelter inflation increased 4.4% annually, the smallest 12-month gain in three years. Rental price growth also showed signs of cooling, marking its slowest annual increase since early 2022. However, used car prices saw another sharp uptick, rising 2.2% in January after consecutive increases in the prior three months, further fueling inflationary pressures.

Federal Reserve officials have maintained that they will closely monitor inflation data before making any adjustments to interest rates. The central bank’s 2% target remains elusive, and the higher-than-expected January data adds another layer of complexity to future rate decisions. Economists caution that while seasonal factors and one-time influences may have played a role in January’s inflation spike, the persistence of elevated core inflation suggests that rate cuts could be delayed.

Claudia Sahm, chief economist at New Century Advisors and former Federal Reserve economist, described the report as a setback. “This is not a good print,” she said, adding that January’s inflation surprises have been a recurring theme in recent years. She noted that while this does not derail the broader disinflationary trend, it does reinforce the need for patience in assessing future rate adjustments.

The economic outlook is further complicated by recent trade policies. President Donald Trump’s imposition of 25% tariffs on steel and aluminum imports, along with upcoming tariffs on Mexico, Canada, and China, raises concerns about potential cost pressures on goods and supply chains. Market reactions were swift, with traders adjusting expectations for the Fed’s first rate cut and stocks selling off in response.

While the Federal Reserve is unlikely to react to a single month’s data, the latest inflation report suggests that policymakers will need to see consistent progress before considering rate reductions. Analysts now anticipate that any potential rate cuts may be pushed into the second half of the year, dependent on future inflation trends.

We Do Not Need to Be in a Hurry: Powell Reiterates Cautious Fed Rate Stance

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Federal Reserve Chair Jerome Powell emphasized that the Fed is in no rush to adjust interest rates, signaling a cautious approach to monetary policy.
– Powell pointed to a strong economy and a balanced job market, reinforcing the need for patience in lowering rates.
– Inflation has eased but remains above the Fed’s 2% target, with upcoming CPI data expected to provide further clarity.

Federal Reserve Chair Jerome Powell reaffirmed the central bank’s cautious stance on interest rate policy in his testimony before the Senate Banking Committee on Tuesday. Powell underscored that with the economy maintaining its strength and policy less restrictive than before, there is no immediate need to lower rates.

“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell stated in his remarks. He emphasized that the Fed remains committed to ensuring inflation moves sustainably toward its 2% target before considering rate cuts.

Powell’s testimony comes amid ongoing economic uncertainties, including the impact of new trade policies under the Trump administration. While President Trump has criticized the Fed in the past, his administration has recently expressed support for the central bank’s decision to hold rates steady. Treasury Secretary Scott Bessent affirmed that the administration is focused on lowering long-term borrowing costs rather than pressuring the Fed for immediate rate cuts.

The Fed last held rates steady in the 4.25%-4.5% range at its January 29 meeting after implementing three consecutive rate cuts at the end of 2024. Despite the easing of inflationary pressures, Powell noted that the central bank would only reduce rates if inflation showed sustainable declines or if the labor market weakened unexpectedly.

Labor market data remains a key factor in the Fed’s decision-making. The January jobs report showed strong employment figures, with the unemployment rate declining and wages growing more than expected. This resilience in the job market has led many economists to predict that the Fed will not cut rates in the near term.

A closely watched inflation report, the Consumer Price Index (CPI), is set for release on Wednesday. Analysts anticipate core CPI—excluding food and energy—will have risen 3.1% year-over-year in January, slightly lower than December’s 3.2% figure. However, monthly core price increases are expected to tick up to 0.3% from the previous 0.2%, reinforcing the need for further monitoring.

Powell reiterated that while inflation has eased substantially over the past two years, it remains elevated relative to the Fed’s long-term target. He assured lawmakers that the Fed is reviewing its monetary policy strategy but will retain the 2% inflation goal as its benchmark.

As the Fed continues to navigate a complex economic landscape, Powell’s cautious tone suggests that policymakers are willing to keep rates steady for longer to ensure economic stability. Investors and market participants will be closely watching upcoming inflation data and Fed communications for further guidance on the timing of potential rate adjustments.

New Inflation Reading Likely Keeps the Fed on Pause for Now

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– December’s core Consumer Price Index (CPI) rose by 0.2% month-over-month, indicating a slight deceleration in inflation.
– Federal Reserve officials are expected to maintain the current interest rates at the January policy meeting.
– Concerns persist about achieving the Fed’s 2% inflation goal amid uncertainties in fiscal and regulatory policies.

Fresh inflation data released Wednesday is likely to keep the Federal Reserve on pause during its next policy meeting this month, even though a new reading did show some signs of easing.

On a “core” basis, which eliminates the more volatile costs of food and gas, the December Consumer Price Index (CPI) climbed 0.2% over the prior month, a deceleration from November’s 0.3% monthly gain. On an annual basis, prices rose 3.2%. It was the first drop on a core basis after three months of being stuck at 3.3%.

“This latest inflation reading confirms a Fed rate cut skip at the January FOMC meeting,” said EY chief economist Gregory Daco. The new print “won’t change expectations for a pause later this month, but it should curb some of the talk about the Fed potentially raising rates,” said Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management. The Fed next meets on Jan. 28-29, and investors are nearly unanimous in their view the central bank will leave rates unchanged after reducing them by a full percentage point in late 2024.

“We are making progress on inflation, it’s just very slow,” former Federal Reserve economist Claudia Sahm told Yahoo Finance Wednesday. “Cuts are not coming later this month, but that doesn’t mean they aren’t coming later this year.”

New York Fed president John Williams said after the CPI release that “while I expect that disinflation will progress, it will take time, and the process may well be choppy.” The economic outlook, he added, “remains highly uncertain, especially around potential fiscal, trade, immigration, and regulatory policies” — a reference to possible changes that could happen as part of the incoming Trump administration. Lots of Fed officials in recent weeks have been urging caution on future rate cuts.

In fact, the Fed’s December meeting minutes showed officials believed inflation could take longer than anticipated to reach their 2% goal, citing stickier-than-expected inflation data since past fall and the risks posed by new policies of Trump 2.0. They noted “the likelihood that elevated inflation could be more persistent had increased,” according to the minutes, even though they still expected the Fed to bring inflation down to its 2% goal “over the next few years.” Several members of the Fed even said at that meeting that the disinflationary process may have stalled temporarily or noted the risk that it could.

The elevated inflation concerns help explain why Fed officials in December reduced their estimate of 2025 rate cuts to two from a previous estimate of four. U.S. Federal Reserve Chair Jerome Powell speaks during a press conference where he announced the Fed had cut interest rates by a quarter point following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., December 18, 2024. REUTERS/Kevin Lamarque.

Inflation could show new signs of progress in year-over-year comparisons later in 2025’s first quarter since in 2024 inflation spiked back up before declining again. Fed governor Michelle Bowman may be the most worried of the Fed officials, saying last week that she could have backed a pause in interest rates last month but supported a cut as the “last step” in the central bank’s “policy recalibration.”

Kansas City Fed president Jeff Schmid, a voting FOMC member this year, said, “I believe we are near the point where the economy needs neither restriction nor support, and that policy should be neutral.” Schmid said he is in favor of adjusting rates “gradually,” noting that the strength of the economy allows the Fed to be patient. Boston Fed president Susan Collins, another voting member this year, also called for a gradual approach.

“With policy already closer to a more neutral stance, I view the current nature of uncertainty as calling for a gradual and patient approach to policymaking,” Collins said. But DWS Group head of fixed income George Catrambone said the new numbers released Wednesday provided a “sigh of relief” for the Fed. But there is still a lot of uncertainty ahead, as new policies from the Trump administration may affect the outlook. As to when the Fed may first cut rates in 2025, “if we don’t see it by Jackson Hole, it’s not coming,” Catrambone added, referring to an annual Fed event that takes place in late August.

Yields Ease, Markets Steady as Investors Await Key Inflation Data

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– U.S. Treasury yields declined slightly after lower-than-expected December producer price index (PPI) data.
– Stock markets showed minimal movement as focus remained on upcoming consumer price index (CPI) data and policy uncertainty tied to President-elect Donald Trump.
– Oil prices fell from recent highs, while the dollar index softened.

Treasury yields in the United States edged down on Tuesday following a report showing that producer prices increased just 0.2% month-on-month in December, underperforming the expected 0.3% rise. This marks a slowdown from November’s 0.4% gain. While the PPI data eased immediate inflation concerns, market attention remains fixed on the consumer price index (CPI) report due on Wednesday.

CPI figures are anticipated to reveal consistent monthly inflation at 0.3% for December, with an annual increase to 2.9%, up from 2.7% in November. Market sentiment has been shaped by fears of persistent inflation, amplified by uncertainty surrounding President-elect Trump’s proposed trade and tax policies. Speculation about tariffs ranging from 2% to 5% monthly has added to concerns about potential inflationary pressures.

Market Performance
Stock market activity was muted as traders digested the PPI data. The Dow Jones Industrial Average added 0.10%, closing at 42,339.90, while the S&P 500 and Nasdaq Composite slipped 0.15% and 0.21%, respectively. The Russell 2000 index, a key indicator for smaller U.S. companies, has seen a decline of roughly 11% since its peak in November.

Internationally, MSCI’s global stock index inched up by 0.14%, while Europe’s STOXX 600 index dipped by 0.11%. With U.S. corporate earnings season kicking off, major banks are expected to report strong quarterly results, driven by increased dealmaking and trading activities.

Treasury Yields and Dollar Movement
The yield on the 10-year Treasury note eased slightly to 4.790%, staying close to its recent 14-month high of 4.805%. Higher yields have weighed on equities, as they make bonds more attractive and raise borrowing costs for companies.

In currency markets, the dollar index fell by 0.1% to 109.31. The euro gained 0.46% to $1.0292, while the dollar strengthened against the yen, rising 0.25% to 157.87.

Oil and Asian Markets
Oil prices retreated after reaching multi-month highs earlier this week. U.S. crude dropped 1.23% to $77.84 per barrel, while Brent crude declined 0.93% to $80.27 per barrel. In Asia, Japan’s Nikkei index fell 1.8%, dragged down by chip stocks and speculation about a potential interest rate hike by the Bank of Japan (BoJ). Deputy Governor Ryozo Himino hinted at a possible rate increase during the central bank’s next policy meeting on January 24, adding to market uncertainty.

With inflation and policy concerns dominating the narrative, investors are likely to remain cautious. The upcoming CPI data and the direction of Trump’s economic agenda are poised to play pivotal roles in shaping market sentiment in the coming weeks.

CPI Data Confirms Fed’s December Rate Cut Path

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Consumer Price Index (CPI) rose 2.7% year-over-year in November, meeting economist expectations.
– Core inflation remains elevated at 3.3% annually, driven by higher shelter and service costs.
– Markets now strongly anticipate a 25-basis-point Federal Reserve rate cut in December.

The Bureau of Labor Statistics released November inflation data on Wednesday, showing consumer prices increased 2.7% year-over-year. This uptick from October’s 2.6% rise aligns with economist projections and solidifies expectations for the Federal Reserve to lower interest rates at its December meeting.

On a monthly basis, the CPI increased by 0.3%, the largest gain since April. Core inflation, excluding volatile food and energy prices, also rose 0.3% month-over-month and 3.3% annually for the fourth consecutive month. Sticky inflation in core components such as shelter and services continues to challenge the Federal Reserve’s goal of achieving a 2% inflation target.

Paul Ashworth, Chief North America Economist at Capital Economics, commented on the persistence of core inflation, noting that it remains a concern but is unlikely to derail the anticipated rate cut. “We don’t expect it to persuade the Fed to skip another 25bp rate cut at next week’s FOMC meeting,” he stated.

Shelter Inflation Moderates, Food Costs Persist

Shelter inflation contributed nearly 40% of the monthly CPI increase, though the annual gain of 4.7% marked a deceleration from October’s 4.9%. Both rent and owners’ equivalent rent showed their smallest monthly increases since mid-2021, suggesting potential relief in housing costs.

Meanwhile, food prices remain a sticky category for inflation. The food index rose 0.4% month-over-month, with notable increases in categories like eggs, which surged 8.2% in November after declining in October. Energy prices also edged higher, rising 0.2% month-over-month, while apparel and personal care costs saw noticeable gains.

Market and Policy Implications

Financial markets reacted positively to the CPI report, as fears of an upside surprise were unfounded. The odds of a 25-basis-point rate cut at the Fed’s December meeting increased to 97% following the release. However, economists remain cautious about potential inflationary pressures stemming from President-elect Donald Trump’s proposed policies, including tariffs and corporate tax cuts.

Seema Shah, Chief Global Strategist at Principal Asset Management, noted the Federal Reserve’s likely shift toward a more cautious approach after December. “We expect the Fed to move off autopilot in January, adopting a more cautious tone, and slowing its pace of cuts to just every other meeting,” Shah said.

As inflation trends remain in focus, the Federal Reserve’s decisions in the coming months will be critical in shaping the economic outlook for 2025.

October Retail Sales Exceed Expectations, September Spending Revised Upward

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– October retail sales increased by 0.4%, surpassing economist expectations of 0.3%.
– September’s retail sales were revised significantly higher to 0.8%, showing stronger-than-expected consumer spending.
– While October data showed slower growth in some sectors, upward revisions to prior months suggest a strong consumption trend heading into Q4 2024.

The latest retail sales data for October has revealed a resilient U.S. consumer, with sales growing 0.4% from the previous month. This uptick exceeded economists’ expectations of a 0.3% rise, highlighting ongoing consumer confidence. Moreover, retail sales in September were revised upward significantly, from a previously reported 0.4% increase to a solid 0.8%, further indicating a stronger-than-anticipated spending trend in the U.S. economy.

According to the Census Bureau, the October increase in retail sales was largely driven by auto sales, which surged 1.6%. This surge in vehicle purchases, despite other sectors showing weaker growth, underlines the importance of the automotive sector to overall retail performance. However, excluding auto and gas sales, which are often volatile, the increase was more modest at just 0.1%. This was below the consensus estimate of a 0.3% rise, pointing to potential weaknesses in discretionary spending.

The October data, while showing signs of slower growth in certain areas, follows a pattern of upward revisions to previous months’ figures, suggesting a more positive overall trajectory for the economy. The September retail sales revisions revealed that both the total and ex-auto categories had grown by 1.2%, far surpassing the initial estimates of 0.7%. This data is crucial, as it points to stronger-than-expected consumer spending, which plays a vital role in supporting economic growth.

Economists are optimistic about the continued momentum in consumer spending, with many predicting another strong quarter for the U.S. economy as it heads into the final stretch of 2024. Capital Economics economist Bradley Saunders noted that the October slowdown in retail sales was somewhat overshadowed by the positive revisions for September, which suggested ongoing consumer strength. “Consumption growth is still going strong,” he commented, reflecting a generally optimistic outlook for the final quarter.

Kathy Bostjancic, Chief Economist at Nationwide, echoed this sentiment, stating that the October data suggested consumers were maintaining their upbeat spending habits as the year-end approached. This is seen as a positive indicator for the broader U.S. economy, suggesting that GDP growth will remain solid through the end of 2024.

This data arrives at a critical time for investors, as concerns over the Federal Reserve’s interest rate policy continue to loom large. While recent economic data, including October’s retail sales, have largely exceeded expectations, investors are keenly watching the Fed’s actions. Federal Reserve Chairman Jerome Powell has stated that the strength in the economy allows the central bank to take a more cautious approach in adjusting interest rates. There is ongoing debate about whether the Fed will make further rate cuts in 2024, especially as inflation remains a concern.

As the U.S. economy shows resilience, it remains to be seen whether consumers will maintain their spending habits amid possible economic uncertainties in the coming months. However, for now, the data points to continued growth and strength in retail sales, a crucial driver of overall economic health.

Fed’s Key Inflation Gauge Drops to 2.2% in August, Paving Way for Further Rate Cuts

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– The PCE price index showed inflation at 2.2% in August, the lowest since early 2021.
– Core PCE, excluding food and energy, rose 2.7%, staying steady with July’s reading.
– The lower-than-expected inflation could prompt additional interest rate cuts by the Fed.

The Federal Reserve’s key inflation measure, the Personal Consumption Expenditures (PCE) price index, posted a notable drop to 2.2% in August, marking the lowest inflation rate since February 2021. This is a clear signal that inflation is continuing its downward trend, positioning the Fed for future interest rate cuts.

The PCE index, which measures the cost of goods and services in the U.S. economy, saw just a 0.1% increase in August from the previous month. Economists had expected the year-over-year inflation rate to settle at 2.3%, but the actual figure came in even lower, underscoring a continued easing of inflation pressures. This development further supports the Fed’s pivot toward focusing on labor market support, rather than aggressive inflation-fighting measures.

The core PCE index, which excludes the volatile food and energy prices, rose by 0.1% in August and maintained an annual increase of 2.7%, in line with economists’ expectations. This core measure is a preferred gauge for the Fed when assessing long-term inflation trends. The steady core inflation number is likely to reinforce the Fed’s decision-making, signaling that while inflation is cooling, there are still pressures, especially in key sectors such as housing.

The recent PCE numbers are particularly crucial as they come on the heels of the Fed’s decision to cut its benchmark interest rate by half a percentage point, lowering it to a target range of 4.75%-5%. It was the first time since March 2020 that the Fed made such a significant rate cut, deviating from its typical quarter-point moves.

With inflation easing closer to the Fed’s long-term 2% target, the latest data could pave the way for additional interest rate reductions by the end of the year. Many market participants expect the Fed to make another cut by half a percentage point before the year’s end, followed by further reductions in 2025.

Fed officials have gradually shifted their focus from solely managing inflation to also supporting the U.S. labor market. Recent data has indicated some softening in the job market, with Fed policymakers noting the need to balance between maintaining price stability and ensuring continued employment growth.

Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, commented on the positive inflation news, saying, “Inflation continues to keep its head down, and while economic growth may be slowing, there’s no indication it’s falling off a cliff.”

Despite the positive inflation report, personal income and spending data were weaker than expected. Personal income increased by 0.2%, while spending also rose by 0.2% in August. Both figures fell short of their respective forecasts of 0.4% and 0.3%. These softer numbers suggest that while inflation may be cooling, consumer demand remains fragile, posing potential risks to broader economic growth.

Looking ahead, investors and market watchers will be closely monitoring upcoming U.S. data, including personal consumption expenditures and jobless claims, for further clues about the Fed’s next move.

Inflation Declines in June for First Time Since 2020 as Consumer Prices Ease

Posted on by slightbourne@noblecapitalmarkets.com

In a significant turn of events, the latest data from the Bureau of Labor Statistics (BLS) revealed that inflation cooled in June, marking the first monthly decline since 2020. The Consumer Price Index (CPI) fell by 0.1% compared to the previous month, with a year-over-year increase of just 3%, down from May’s 3.3% annual rise. This data beat economists’ expectations of a 0.1% monthly increase and a 3.1% annual gain.

The June CPI report is notable for being the first instance since May 2020 that the monthly headline CPI turned negative. Additionally, the 3% annual gain represents the slowest rate of increase since March 2021.

When excluding volatile food and gas prices, the “core” CPI showed a modest increase of 0.1% from the previous month and a 3.3% rise over the past year. These figures also came in below expectations, as economists had anticipated a 0.2% monthly increase and a 3.4% annual gain. This marks the smallest month-over-month increase in core prices since August 2021.

In response to the report, markets opened on a positive note. The yield on the 10-year Treasury note fell by approximately 10 basis points, trading around 4.2%.

Despite the positive signs, inflation remains above the Federal Reserve’s 2% annual target. However, recent economic data suggests that the central bank might consider rate cuts sooner rather than later. Following the release of the June inflation data, market analysts estimated an 89% likelihood that the Federal Reserve would begin cutting rates at its September meeting, up from 75% the previous day, according to CME Group data.

The broader economic context includes a robust labor market report from the BLS, which indicated that 206,000 nonfarm payroll jobs were added in June, surpassing the forecast of 190,000 jobs. However, the unemployment rate edged up to 4.1%, its highest level in nearly three years.

The Fed’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) price index, showed a year-over-year increase of 2.6% in May, the smallest annual gain in over three years, aligning with expectations.

Ryan Sweet, Chief US Economist at Oxford Economics, noted that while the drop in CPI between May and June bolsters the argument for rate cuts, it should be interpreted cautiously. He emphasized that this single-month decline does not necessarily indicate a lasting trend.

Seema Shah, Chief Global Strategist at Principal Asset Management, echoed this sentiment, suggesting that while the current figures set the stage for a potential rate cut in September, a cut in July remains unlikely. Shah pointed out that such a premature move could raise concerns about the Fed’s insider knowledge on the economy, and more evidence is needed to confirm a sustained downward trajectory in inflation.

In the breakdown of the CPI components, the shelter index, a significant contributor to core inflation, showed signs of easing. It increased by 5.2% on an annual basis, down from May’s rate, and rose by 0.2% month-over-month. This was the smallest increase in rent and owners’ equivalent rent indexes since August 2021. Additionally, lodging away from home decreased by 2% in June.

Energy prices continued their downward trend, with the index dropping 2% from May to June, primarily driven by a notable 3.8% decline in gas prices. On an annual basis, energy prices were up 1%.

Food prices, however, remained a sticky point for inflation, increasing by 2.2% over the past year and 0.2% from May to June. The index for food at home rose by 0.1% month-over-month, while food away from home saw a 0.4% increase.

Other categories such as motor vehicle insurance, household furnishings and operations, medical care, and personal care saw price increases. Conversely, airline fares, used cars and trucks, and communication costs decreased over the month.

As inflation shows signs of cooling, the economic outlook suggests potential shifts in Federal Reserve policy, with market participants keenly watching upcoming data to gauge the next steps in monetary policy.

Inflation Cools in May, Raising Hopes for Fed Rate Cuts

Posted on by slightbourne@noblecapitalmarkets.com

In a much-needed respite for consumers and the economy, the latest U.S. inflation data showed pricing pressures eased significantly in May. The Consumer Price Index (CPI) remained flat month-over-month and rose just 3.3% annually, according to the Bureau of Labor Statistics report released Wednesday. Both measures came in below economist expectations, marking the lowest monthly headline CPI reading since July 2022.

The lower-than-expected inflation numbers were driven primarily by a decline in energy costs, led by a 3.6% monthly drop in gasoline prices. The overall energy index fell 2% from April to May after rising 1.1% the previous month. On an annual basis, energy prices climbed 3.7%.

Stripping out the volatile food and energy categories, so-called core CPI increased just 0.2% from April, the smallest monthly rise since June 2023. The annual core inflation rate ticked down to 3.4%, moderating from the prior month’s 3.5% gain.

The cooling inflation data arrives at a pivotal time for the Federal Reserve as policymakers weigh their next policy move. Central bank officials have repeatedly stressed their commitment to bringing inflation back down to the 2% target, even at the risk of slower economic growth. The latest CPI print strengthens the case for interest rate cuts in the coming months.

Financial markets reacted positively to the encouraging inflation signals, with the 10-year Treasury yield falling around 12 basis points as traders priced in higher odds of the Fed starting to cut rates as soon as September. According to futures pricing, markets now see a 69% chance of a rate cut at the central bank’s September meeting, up sharply from 53% before the CPI release.

While the overall inflation trajectory is encouraging, some underlying price pressures remain stubbornly high. The shelter index, which includes rents and owners’ equivalent rent, rose 0.4% on the month and is up a stubbornly high 5.4% from a year ago. Persistent shelter inflation has been one of the biggest drivers of elevated core inflation readings over the past year.

Economists expect the housing components of inflation to eventually moderate given the recent rise in rental vacancy rates and slowing home price appreciation. However, the timing of that slowdown remains highly uncertain, keeping a key pillar of inflation risk intact for the time being.

Beyond shelter costs, other indexes that posted monthly increases included medical care services, used vehicle prices, and tuition costs for higher education. In contrast, airline fares, prices for new cars and trucks, communication services fees, recreation expenses and apparel prices all declined from April to May.

Despite the positive inflation signals from the latest CPI report, Federal Reserve officials have cautioned that the path back to 2% price stability will likely encounter bumps along the way. Last week’s stronger-than-expected jobs report reinforced the central bank’s hawkish policy stance, with the labor market adding 272,000 positions in May versus expectations for 180,000. Wage growth also remained elevated at 4.1% annually.

With both low inflation and low unemployment now seemingly achievable, the Federal Reserve will need to carefully navigate its policy path to engineer a so-called “soft landing” without tipping the economy into recession. Many economists expect at least a couple of 25 basis point rate cuts by early 2024 if inflation continues cooling as expected.

For investors, the latest CPI data provides a much-needed burst of optimism into markets that have been weighed down by persistent inflation fears and looming recession risks over the past year. Lower consumer prices should provide some relief for corporate profit margins while also supporting spending among cost-conscious households. However, the key question is whether this downshift in inflation proves durable or merely a temporary reprieve.

The Fed’s ability to deftly manage the competing forces of lowering inflation while sustaining economic growth will be critical for shaping the trajectory of investment portfolios in the months ahead. Keep a close eye on forward inflation indicators like consumer expectations, global supply dynamics, and wage trends to gauge whether this cooling phase proves lasting or short-lived. The high-stakes inflation battle is far from over.

Inflation Finally Cools – Here’s the Key Number That Stunned Economists

Posted on by slightbourne@noblecapitalmarkets.com

The latest data from the Bureau of Labor Statistics provided a glimmer of hope in the battle against stubbornly high inflation. The Consumer Price Index (CPI) rose by 0.3% in April compared to the previous month, marking the slowest monthly increase in three months. On an annual basis, consumer prices climbed 3.4%, a slight deceleration from March’s 3.5% rise.

These figures indicate that inflationary pressures may be starting to abate, albeit gradually. The monthly increase came in lower than economists’ forecasts of a 0.4% uptick, while the annual rise matched expectations. After months of persistently elevated inflation, any signs of cooling are welcomed by consumers, businesses, and policymakers alike.

The slight easing of inflation was driven by a moderation in some key components of the CPI basket. Notably, the shelter index, which includes rents and owners’ equivalent rent, experienced a slowdown in its annual growth rate, rising 5.5% year-over-year compared to the previous month’s higher rate. However, shelter costs remained a significant contributor to the monthly increase in core prices, excluding volatile food and energy components.

Speaking of core inflation, it also showed signs of cooling, with prices rising 0.3% month-over-month and 3.6% annually, slightly lower than March’s figures. Both measures met economists’ expectations, providing further evidence that the overall inflationary trend may be moderating.

One area that continued to exert upward pressure on prices was energy costs. The energy index jumped 1.1% in April, matching March’s increase, with gasoline prices rising by 2.8% over the previous month. However, it’s worth noting that energy prices can be volatile and subject to fluctuations in global markets and geopolitical factors.

On the other hand, food prices remained relatively stable, with the food index increasing by 2.2% annually but remaining flat from March to April. Within this category, prices for food at home decreased by 0.2%, while prices for food away from home rose by 0.3%.

The April inflation report had a positive impact on financial markets, with investors anticipating a potential easing of monetary policy by the Federal Reserve later this year. The 10-year Treasury yield fell about 6 basis points, and markets began pricing in a roughly 53% chance of the Fed cutting rates at its September meeting, up from about 45% the previous month.

While the April data provided some respite from the relentless climb in consumer prices, it’s important to remember that inflation remains well above the Fed’s 2% target. The battle against inflation is far from over, and the central bank has reiterated its commitment to maintaining tight monetary policy until price stability is firmly established.

As markets and consumers digest the latest inflation report, all eyes will be on the Fed’s upcoming policy meetings and any potential shifts in their stance. A sustained cooling of inflationary pressures could pave the way for more accommodative monetary policy, but any resurgence in price growth could prompt further tightening measures.

In the meantime, businesses and households alike will continue to grapple with the effects of elevated inflation, adjusting their spending and investment decisions accordingly. The April data offers a glimmer of hope, but the road to price stability remains long and arduous.

Want small cap opportunities delivered straight to your inbox?

Channelchek’s free newsletter will give you exclusive access to our expert research, news, and insights to help you make informed investment decisions.

Get Instant Access

Inflation Just Dropped a Massive Hint About the Fed’s Next Move

Posted on by slightbourne@noblecapitalmarkets.com

The major U.S. stock indexes inched up on Tuesday as investors digested mixed producer inflation data and turned their focus to the much-anticipated consumer price index report due out on Wednesday.

The producer price index (PPI) for April showed prices paid by businesses for inputs and supplies increased 0.2% from the prior month, slightly above economists’ expectations of 0.1%. On an annual basis, PPI rose 2.3%, decelerating from March’s 2.7% pace but still higher than forecasts.

The “hot” PPI print caused traders to dial back bets on an interest rate cut from the Federal Reserve at its September meeting. Fed funds futures showed only a 48% implied probability of a 25 basis point rate cut in September, down from around 60% before the report.

Speaking at a banking event in Amsterdam, Fed Chair Jerome Powell characterized the PPI report as more “mixed” than concerning since revisions showed prior months’ data was not as hot as initially reported. He reiterated that he does not expect the Fed’s next move to be a rate hike, based on the incoming economic data.

“My confidence [that inflation will fall] is not as high as it was…but it is more likely we hold the policy rate where it is [than raise rates further],” Powell stated.

Investors are now eagerly awaiting Wednesday’s consumer price index data as it will provide critical signals on whether upside inflation surprises in Q1 were just temporary blips or indicative of a more worrying trend.

Consensus estimates project headline CPI cooled to 5.5% year-over-year in April, down from 5.6% in March. Core CPI, which strips out volatile food and energy prices, is expected to moderate slightly to 5.5% from 5.6%.

If CPI comes in hotter than projected, it would solidify expectations that the Fed will likely forego rate cuts for several more months as it prioritizes restoring price stability over promoting further economic growth.

Conversely, cooler-than-forecast inflation could reinforce the narrative of slowing price pressures and clear the path for the Fed to start cutting rates as soon as June or July to provide a buffer against a potential economic downturn.

The benchmark S&P 500 index closed up 0.18% on Tuesday, while the tech-heavy Nasdaq gained 0.43%. Trading was choppy as investors bided their time ahead of the CPI release.

Market focus has intensified around each new inflation report in recent months as investors attempt to gauge when the Fed might pivot from its aggressive rate hike campaign of the past year.

With inflation still running well above the Fed’s 2% target and the labor market remaining resilient, most economists expect the central bank will need to keep rates elevated for some time to restore price stability. But the timing and magnitude of any forthcoming rate cuts is still hotly debated on Wall Street.

Want small cap opportunities delivered straight to your inbox?
Channelchek’s free newsletter will give you exclusive access to our expert research, news, and insights to help you make informed investment decisions.

Get Instant Access

Hotter Inflation Pushes Back Expected Fed Rate Cuts

Posted on by slightbourne@noblecapitalmarkets.com

Inflation picked up speed in March, with consumer prices rising at a faster pace than anticipated. The higher-than-expected inflation data throw cold water on hopes that the Federal Reserve will be able to start cutting interest rates anytime soon.

The Consumer Price Index (CPI), which measures the costs of a broad basket of goods and services across the economy, rose 0.4% in March from the previous month. That pushed the 12-month inflation rate up to 3.5% compared to 3.2% in the year through February.

Economists had forecast the CPI would rise 0.3% on a monthly basis and 3.4% annually.

The acceleration in inflation was driven primarily by two major categories – shelter and energy costs.

Housing costs, which make up about one-third of the CPI’s weighting, climbed 0.4% from February and are now up 5.7% over the past 12 months. Rising rents and home prices get reflected in the shelter component.

Energy prices increased 1.1% in March after already jumping 2.3% in February. Gasoline costs have remained elevated despite recent pullbacks.

Stripping out the volatile food and energy components, core CPI also rose 0.4% for the month and 3.8% annually – both higher than expected.

The stronger-than-expected inflation readings make it more challenging for the Fed to start lowering interest rates in the coming months as financial markets had anticipated. Traders had priced in expectations that the first rate cut would occur by June based on Chairman Jerome Powell’s comments that inflation was headed lower.

However, following the hot March data, markets now project the Fed’s first rate reduction won’t come until September at the earliest. Some economists believe even a July rate cut now looks unlikely.

The acceleration in inflation puts the Fed in a difficult position as it tries to navigate bringing stubbornly high price pressures under control without crashing the economy. Policymakers have emphasized the need to see more concrete evidence that inflation is cooling in a sustained way before easing up on rate hikes.

Fed officials have pointed to an expected deceleration in housing costs, which tend to be sticky, as a key reason inflation should slow in the coming months. But the March data showed rents continuing to increase at an elevated pace.

The services inflation component excluding energy picked up to a 5.4% annual rate. The Fed views services prices as a better indicator of more durable inflationary pressures in the economy.

Some bright spots in the report included lower used vehicle prices, which declined 1.1%. Food costs only increased 0.1% with lower prices for butter, cereal and baked goods offsetting a big 4.6% jump in egg prices.

Overall, the March CPI report suggests the Fed still has more work to do in taming inflation back to its 2% target. Traders are now pricing in higher terminal interest rates and little chance of rate cuts in 2023 following the inflation surprise.

Persistently elevated inflation could ultimately force the Fed to hike rates higher than expected, raising risks of a harder economic slowdown. The central bank will provide more clues on its policy outlook when it releases minutes from its March meeting on Wednesday afternoon.

For consumers feeling the pinch of high prices, the March CPI data means little relief is likely coming anytime soon on the inflation front. The big question is how long stubbornly high inflation will persist and exacerbate the already difficult trade-offs facing the Federal Reserve.