Good news. Inflation comes in as expected quit more drag from shelter costs. Rents are cooling and hotel room rates continued to plummet in July.
The sticking point is the Core CPI, which was up 0.3% but rounded to a 3.1% gain from a year ago.
The sticking point is the Core CPI, which was up 0.3% but rounded to a 3.1% gain from a year ago.
That is the hottest pace for the core, which excludes the volatile food and energy components.
Why does the Fed care so much about the core. It included more things it can affect and it tends to be the best indicator of where momentum is headed, which is up for prices.
Why does the Fed care so much about the core. It included more things it can affect and it tends to be the best indicator of where momentum is headed, which is up for prices.
Durable goods prices increased at their fastest year over year pace since November 2022 after placing a drag on inflation much of last year and the start of this year.
The super core services, which strips out shelter and utilities, soared 0.5%, it fastest pace since January.
The super core services, which strips out shelter and utilities, soared 0.5%, it fastest pace since January.
The increase from a year ago was 3.7%, the hottest annual pace since February. That compares to 2.2% in 2019
Many hoped that service sector inflation would cool and offset the upward pressure due to tariffs. The opposite is occurring, which will catch the Fed’s attention.
Many hoped that service sector inflation would cool and offset the upward pressure due to tariffs. The opposite is occurring, which will catch the Fed’s attention.
Gains in the service sector showed up in health care, vehicle insurance, postage/shipping, financial services and airfares.
Airfares rebounded after cooling earlier in the year.
This is all prior to tariffs still to be felt in the pipeline - firms announced more increases…
Airfares rebounded after cooling earlier in the year.
This is all prior to tariffs still to be felt in the pipeline - firms announced more increases…
…for August, including consumer in the cost of many consumer staples. It takes a 6-18 months for the initial effects of tariffs to work their way through the economy. That coupled with the doubling of the June effective tariff rate in August, suggests the bulls of…
…the tariff-induced inflation is still ahead of us.
The service sector inflation needs to be watched. That was the stickiest part of the pandemic-induce inflation. We can’t afford a u-turn in it.
The service sector inflation needs to be watched. That was the stickiest part of the pandemic-induce inflation. We can’t afford a u-turn in it.
Financial markets are betting heavily on a September rate cut. The devil in the details on this data is not easy for the Fed. They will need to see a further weakening in demand and the labor market to feel comfortable cutting, while inflation is moving up.
We are due another forecast with the September meeting. Look for more participants to coalesce around two cuts. That average could be pulled down if the president’s nominee to temporarily replace Gov Adriana Kugler is sworn in by Sept. We have held to two cuts this year.
The September meeting will be live but Powell will be reluctant to telegraph a certain cut in September, given all the data on both inflation & employment cut out prior to then. Dissents will persist if they do not cut. We still have two cuts penciled in by year end.
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