Inflation in the U.S. Consumer Price Index: Two Months of Progress as Central Banks and Wall Street Look Beyond the Standard Model
Major inflation gauges, while stubbornly high, have shown signs of peaking. The Federal Reserve’s preferred inflation gauge, the PCE Price Index, rose 6% in October versus a year ago and notched the smallest monthly gain in more than a year. The final Consumer Price Index report of the year comes out on Tuesday, and the Producer Price Index also showed signs of cooling, at 7.4%, down from an 8.1% annual rate in October.
The Bureau of Economic Analysis said Friday the Personal Consumption Expenditures price index for August rose by 6.2% from a year ago, following a revised July reading of 6.4%. It was seen as a main factor behind the central bank raising its benchmark rate three times in a row earlier this month.
The core inflation measure, which excludes the volatile categories of food and energy and is the number watched most closely by Fed policymakers, rose by 4.9% on a year-over-year basis in August, up from 4.7% in July. July’s revision to the Core PCE was revised to zero, and the surge was 0.6% for the month.
Because fast inflation has lingered for more than a year and half and has broadened to an array of goods and services, central bankers are likely to remain squarely focused on wrestling inflation lower.
The overall prices rose a slightly higher than expected t0 October but were not up as much as the economists had forecast.
Still, Fed officials and Wall Street analysts will be more closely watching the monthly figures, including what happened between August and September. While the annual numbers reflect what has happened cumulatively over the past 12 months, the monthly data give a clearer snapshot of how prices are evolving in real time.
Many economists expect inflation to moderate in the months ahead as supply chains heal, declines in used car prices make their way to buyers and consumer demand pulls back. But they expect the progress to be gradual as rents continue to climb and other service costs increase. But the progress has been bumpy so far.
The Fed aims for 2 percent annual inflation on average, though it defines that using a different inflation gauge: the Personal Consumption Expenditures measure, which will not be released until late October.
In the past year the Fed has raised rates five times and is considering an increase of half a point or more at their upcoming meeting. The new figures will bolster the case for the bigger increase.
The Good News: Rental Car Prices have Dropped in the Last Four Years, and Gas Prices Haven’t Bleached in 2021
Rental cars: Rental car companies slashed their fleets during the early months of the pandemic, selling the cars they had to raise cash. With automakers still not back to full production due to a shortage of parts needed to build cars, including computer chips, it’s taken a while for the rental car companies to replenish their fleets to meet demand. The good news is that the prices of car rentals went down 15% in June and 3.5% in October from where they stood last year. Still, rental cars are 46% more expensive than they were in October 2019.
Airfare: Data from aviation analytics firm Cirium shows the number of flights scheduled for November and December is down 15% from the same months in 2019. Smaller regional carriers that serve smaller airports have previously flown many of the missing flights. But even with a greater percentage of flights on larger planes, the number of seats available is down 3.5% compared to that same period in 2019.
A surge in Covid-19 cases at the end of 2021 depressed demand for leisure travel, but this year it’s positively robust, according to the airlines and industry experts.
Scott’s Cheap Flights founder Scott Keyes said that leisure travel is the reason for the recovery of holiday travel. “So many people wanted to travel over Labor Day and July 4, and as we’re going to see pretty soon, over Thanksgiving and Christmas.”
Gas prices: The good news is that price of a gallon of regular gas nationwide is well below the $5.02 record hit in June. The average was down 27% as of Sunday. And prices continue to fall — the average price is down 11 cents a gallon in just the last week.
This year, prices are 8% higher than last year. The price of gas is typically at its seasonal low at the end of the year, frequently just before Christmas.
The lowest gasoline prices in the United States in a year is providing relief to Americans who have spent the next four years grappling with the worst inflation in decades.
“Gasoline deflation is alive and well,” Patrick De Haan, head of petroleum analysis at GasBuddy, tweeted on Wednesday, noting the quick comedown in gas prices in California, where prices have been particularly steep.
The fall in energy prices could decrease consumer inflation. The US consumer price index in October registered its lowest annual reading since January. Next week there will be data for November.
Energy analysts had been worried that Europe’s embargo on oil shipped by sea from Russia and the West’s new price cap on Russian crude could inject volatility back into the market. But so far, oil prices have continued their descent.
Both Brent crude futures, the global benchmark, and West Texas Intermediate futures, the go-to for US prices, have dropped almost 10% so far this week, hitting their lowest levels of the year.
Plus, demand from China could rebound faster than expected as the country lifts coronavirus restrictions. Concerns about the economic impact of those restrictions have been a key reason oil prices have dropped in recent months.
Another key inflation measure shows price pressures cooled off but remained stubbornly high in November, despite the Federal Reserve’s monthslong efforts to fight inflation through higher interest rates.
The Bureau of Labor Statistics reported the Producer Price Index, which measures prices paid by businesses before they reach consumers, rose 7.4% in November. That’s down from the revised 8.1% gain reported for October.
The US stocks fell immediately after the report, as economists had expected to see an annual rise in wholesale prices of 7 to 7.2%. The higher-than-expected inflation readings raised concerns about whether the Fed will be able to slow the pace of rate hikes.
Implications of Peculiarities on U.S. Consumer Price Index, Core Product Inflationary Rate, and the Cost of Living
There is a good chance that the Fed funds rate will increase by at least half a point at the central bank’s policy meeting next week.
The PPI report generally gets less attention that the corresponding Consumer Price Index, which measures prices paid by US consumers for goods and services. This is not the norm, with the report coming out before the report on the consumer price index.
“Next Tuesday’s CPI release will be more important than today’s data, but with traders on edge, any indication that prices remain elevated and that inflation is more sticky than currently believed is a negative for markets,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.
The core product inflation rate fell from a revised 6.8% increase the previous month to 6.2% for the year ending in November. Economists had forecast only a 5.9% increase.
Still, considering the Federal Reserve has raised interest rates six times this year, there is a long way to go and inflation is still issue number one for Americans. In CNN’s most recent poll, the current cost of living represents a near-universal worry, with 93% saying they’re at least somewhat concerned by this, including 63% who say they are very concerned.
Shoppers scored major deals over the Thanksgiving shopping period amid widespread price-cutting. Adobe analyzed online inflation in November and found it to have fallen for the first time in 31 months.
Retailers awash with excess inventory are expected to keep marking down goods into the end of the year, as consumers shift from buying couches and clothes to spending on travel and experiences — where prices are not coming down for now.
Global supply chains are working themselves out and commodity and shipping costs are going down. Rent and automobile prices are not rising as quickly as they could. Chicken prices hit their record high this summer but have since fallen. And according to real estate site RealPage, apartment rents have fallen for three consecutive months.