Tag: CPI

April Inflation Cools, but Core Pressures and Consumer Pain Remain

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– April’s CPI showed the slowest annual increase since February 2021, offering some relief from persistent inflation pressures.
– Core categories like shelter, medical care, and some food items continue to climb, keeping financial strain high for many consumers.
– The full effect of President Trump’s new tariffs hasn’t materialized in CPI data yet—future inflation may hinge on trade policy outcomes.

Inflation in the United States slowed in April to its lowest annual rate in over four years, offering a tentative sign of relief for policymakers and consumers alike. But under the surface, essential costs—like food, shelter, and medical care—continued to pressure household budgets, highlighting the uneven nature of disinflation in the current economic environment.

According to data released Tuesday by the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 2.3% over the previous year, down slightly from March’s 2.4%. This marks the smallest annual increase since February 2021. On a monthly basis, prices ticked up 0.2%, lower than economists’ expectations and a deceleration from previous months.

The slowdown comes amid heightened attention to President Donald Trump’s recent tariffs, which began to take effect in April. So far, their full impact has not shown up in inflation data, but analysts warn the effects may be delayed. “There isn’t a lot of evidence of tariffs boosting the CPI in April, but this shouldn’t be surprising—it takes time,” noted Oxford Economics’ Ryan Sweet.

Despite the broad deceleration in inflation, many everyday necessities remain stubbornly expensive. Shelter costs, which make up about a third of the CPI basket, rose 0.3% month-over-month and 4% from the previous year—still the largest contributor to overall inflation.

Medical care was another driver, rising 0.5% in April and 3.1% annually. Hospital services and nursing home care climbed even more sharply, up 3.6% and 4.6%, respectively. Prescription drug prices were also up, increasing 0.4% month-over-month.

Food prices presented a mixed picture. Grocery costs declined 0.4% from March, led by significant drops in prices for eggs, cereal, and hot dogs. Yet key categories such as meat and dairy remain well above year-ago levels. Ground beef prices, for instance, are 10% higher than this time last year, and steaks are up 7%.

Eating out also continues to climb in cost, with restaurant prices rising 0.4% in April and nearly 4% over the past year.

Consumer goods categories like furniture, bedding, appliances, and toys—some of which are most directly impacted by tariffs—showed modest increases in April. Furniture and bedding prices rose 1.5%, while appliances were up 0.8%.

Although tariffs were initially expected to drive prices higher more broadly, the effect may be blunted or deferred due to a 90-day pause recently announced by the White House, applying to most countries except China. A baseline 10% duty remains in place globally, leaving future pricing trends dependent on trade policy developments.

While the latest inflation report offers encouraging signs that price pressures are easing, the Federal Reserve is unlikely to pivot its interest rate policy soon. Inflation remains above the Fed’s 2% target, and “core” inflation—excluding food and energy—remained flat at 2.8% year-over-year.

For American households, modest relief at the gas pump or in the grocery aisle may be welcome, but rising healthcare and housing costs continue to erode real income gains. The road to price stability is still uncertain—and the next few months will be critical in determining whether inflation has truly turned a corner or is merely catching its breath.

U.S. Inflation Slows to 2.4% in March, Core Rate Hits Four-Year Low Amid Tariff Uncertainty

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– U.S. inflation fell to 2.4% in March, below expectations, with core inflation hitting a four-year low at 2.8%.
– A steep drop in energy prices and moderating shelter costs helped keep inflation contained.
– Markets remain cautious as future inflation data may reflect new tariffs still under negotiation.

Inflation in the United States cooled more than expected in March, offering a temporary reprieve to consumers and policymakers alike. According to data released Thursday by the Bureau of Labor Statistics, the Consumer Price Index (CPI) fell by 0.1% on a seasonally adjusted basis, bringing the 12-month inflation rate to 2.4%. That’s a notable drop from February’s 2.8% pace and well below Wall Street’s expectations of a 2.6% rise.

Core inflation, which excludes volatile food and energy categories, increased just 0.1% for the month. On an annual basis, core CPI is now running at 2.8% — its lowest level since March 2021. The data arrives at a pivotal moment, as the White House recalibrates its tariff strategy and the Federal Reserve weighs the timing of future rate cuts.

Energy prices played a major role in the softer inflation print. Gasoline prices slid 6.3% in March, driving a 2.4% overall drop in the energy index. Meanwhile, food prices remained a source of upward pressure, climbing 0.4% during the month. Egg prices, in particular, continued to surge — rising nearly 6% month-over-month and up more than 60% year-over-year.

Shelter costs, historically one of the stickiest inflation categories, also moderated. The index for shelter rose just 0.2% in March and was up 4% over the past year, the smallest annual increase since late 2021. Used vehicle prices declined by 0.7%, and new car prices ticked up just 0.1%, as the auto industry braces for the potential impact of upcoming tariffs.

Other notable categories showed price relief as well. Airline fares dropped by over 5% on the month, and prescription drug prices declined 2%. Motor vehicle insurance — which had been trending higher — dipped by 0.8%, offering additional breathing room to consumers.

Despite the favorable inflation data, market reaction was mixed. Stock futures pointed to a lower open on Wall Street, and Treasury yields slipped as investors weighed how this report would influence the Fed’s interest rate trajectory. Traders are still pricing in the likelihood of three to four rate cuts by the end of 2025, with expectations largely unchanged following the release.

The inflation report comes just a day after President Trump surprised markets by partially reversing his hardline tariff stance. While the administration left in place a blanket 10% duty on all imports, the more aggressive reciprocal tariffs set to take effect this week were paused for 90 days to allow for negotiations. Though tariffs historically fuel inflation by raising import costs, the delay adds new uncertainty to inflation forecasts for the months ahead.

While March’s CPI figures appear encouraging on the surface, economists caution that the full impact of trade policy changes has yet to be reflected in consumer prices. Analysts expect some upward pressure on inflation later in the year as tariffs work their way through the supply chain.

For now, the Fed appears to be in wait-and-see mode. With inflation easing and activity still soft, central bank officials face a delicate balancing act in the months ahead as they consider the dual risks of economic slowdown and renewed price pressures from trade tensions.

Inflation Remains Stubborn as Consumer Sentiment Hits Lowest Level Since 2022

Posted on by slightbourne@noblecapitalmarkets.com
Key Points:
– Core inflation rose 2.8% in February, exceeding expectations, while consumer spending increased 0.4%.
– Consumer sentiment dropped to its lowest level since 2022, with growing fears about the labor market.
– The Federal Reserve remains cautious on rate cuts as inflation remains above its 2% target.

The U.S. economy continues to face challenges as inflation remains higher than expected while consumer sentiment has dropped to its lowest level in more than two years. Recent data from the Commerce Department and the University of Michigan highlight ongoing concerns about rising prices, slowing consumer spending, and a weakening labor market.

The Federal Reserve’s preferred inflation measure, the core Personal Consumption Expenditures (PCE) price index, rose 0.4% in February, bringing the annual rate to 2.8%. Both figures exceeded economists’ expectations, marking the biggest monthly gain since early 2024. The broader PCE index, which includes food and energy, rose 0.3% on the month and 2.5% year-over-year, in line with forecasts. Goods prices increased 0.2%, led by recreational goods and vehicles, while services prices climbed 0.4%. Gasoline prices provided some relief, declining 0.8%.

Consumer spending increased 0.4% in February, slightly below the 0.5% forecast, despite a stronger-than-expected rise in personal income of 0.8%. While Americans are earning more, they remain cautious about their spending, with the personal savings rate rising to 4.6%, the highest level since June 2024. The stock market reacted negatively to the inflation data, with futures briefly declining as investors weighed the possibility of prolonged higher interest rates.

At the same time, consumer sentiment has weakened. The University of Michigan’s sentiment index fell to 57 in March, the lowest reading since November 2022. A key measure of consumer expectations for the economy dropped to 52.6, signaling growing uncertainty about financial conditions. Labor market concerns are increasing, with two-thirds of consumers expecting unemployment to rise in the coming year, the highest level since 2009. While February’s job report showed 151,000 jobs added and an unemployment rate of 4.1%, underlying data suggests hiring may be slowing. Indicators such as declining job postings and fewer workers voluntarily leaving jobs point to reduced confidence in the labor market.

The Federal Reserve now faces a difficult decision. After cutting rates by a full percentage point in 2024, the central bank has held off on further moves this year. Policymakers are closely monitoring inflation, particularly as President Trump’s proposed tariffs could increase costs across multiple sectors. While tariffs are generally viewed as one-time price shocks rather than ongoing inflationary forces, the scope of Trump’s trade policies and the potential for a broader trade war add uncertainty to the outlook.

For now, the Fed is likely to maintain its cautious stance, balancing inflation concerns with signs of weakening consumer confidence and labor market risks. If economic conditions deteriorate further, discussions around potential rate cuts may gain traction. However, as inflation remains above the central bank’s 2% target, policymakers are hesitant to move too quickly.

With inflation pressures persisting and consumer sentiment weakening, the economic outlook remains uncertain. Higher prices and job market concerns could weigh on consumer spending in the coming months, potentially slowing economic growth. Investors and businesses will be closely watching for signals from the Fed as it navigates a delicate balancing act between inflation control and economic

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.