October Inflation Report Price Pressures Show Signs of Cooling

Sven

Consumer prices rose 7.7 percent in the year through October, slower than economists anticipated. Stocks jumped at the sign that the Federal Reserve’s campaign to tame inflation was taking effect.

September’s CPI was at 8.2%. The probability of a smaller rate hike, 50 bps, is likely in December FOMC meeting. Also lay-offs among large companies are taken place as business slows, that reduces the upward pressure on labor cost (service cost) and inflation.
https://nytimes.com/live/2022/11/10/business/inflation-cpi-report

yogibearbull

FRED CPI y-o-y data show that the CPI peaked in June and the latest report just confirms the downtrend. Component analyses point to high diesel/heating oil prices and related (e.g. commercial transportation) to be the lingering cause of inflation. That has got the market excited.
https://fred.stlouisfed.org/graph/?g=WhmD

Sven

The S&P500 was up 4% this morning. The 2 yr and 10 yr treasury yields also dropped that move that the broader bond index upward. It is encouraging to all investors.

yogibearbull

Many follow here, TROW top % gainer in SP500 at +15%+.
https://stockcharts.com/h-sc/ui?s=TROW&p=D&b=5&g=0&id=p41192372971

Sven

TROW has not done well this year, so I am glad to see it turning around. Also Cathy Woods’ ARKK ETF which is up 13% ! But this ETF is still down 60% for the year.

Today is just one data point and there is still a way to go. Earning reports indicating business are slowing down, so the market is still not a bargain. The rate hike will continue well into 2023 but at a slower pace.

The chart of the article below indicates energy, food and housing are still the biggest drivers on inflation.
https://cnbc.com/2022/11/10/heres-the-inflation-breakdown-for-october-2022-in-one-chart.html

davidrmoran

see threads (if possible)

https://twitter.com/JustinWolfers/status/1590703184799883269

https://twitter.com/paulkrugman/status/1590702546322358277

Sven

Thank you, davidmoran.

From Fidelity,
https://fidelity.com/news/article/top-news/202211100849RTRSNEWSCOMBINED_KBN2S01F4-OUSBS_1

Old_Joe

@Sven- for some reason your link doesn't seem to work when used via MFO, but it does work OK when copied into my Firefox browser.

Sven

Sorry about that. I reposted and checked the URL again. It is working now.

AndyJ

Good FRED chart from Yogi. Inflation turned in mid-summer; the year-over-year comparison doesn't pick up the magnitude of the change, given that it still includes very high months, e.g., when month-over-month jumps were a full percent or more, from March thru June. Month-over-month readings are far down from those months. Year over year is a view through a rearview mirror.

The last 4 months' CPI changes (these are rounded to one decimal place) give a better picture of current inflation.

July 0.0%
Aug 0.1%
Sept 0.4%
Oct 0.4%

Since the sharp turn in July's reading, annualized inflation has been less than 3%. If you annualize only October or the two higher months' readings, it's still significantly less than year-over-year.

Bond funds rallied hard today, e.g., multisector Ponax +1.76%; core plus Dbltx +1.62%; Treasuries TLT 3.85% and IEF 2.24%. Munis are off the bottom too.

No drawing conclusions from one day's action for me, but there has been a big shift in inflationary pressure that may be getting some attention now. Does it have legs? Quien sabe ...

yogibearbull

@AndyJ, FRED also has a chart on month-over-month changes in the CPI and that series is more noisy. But recent reductions are noticeable (your 4 data points can be verified).
https://fred.stlouisfed.org/graph/?g=Wj6y

AndyJ

@Yogi, the page I linked also has a simple M-O-M chart for 2022, near the bottom of the page; yep, it's noisy from one month to the next. July was very slightly negative, and it's kind of arresting to see it displayed that way after the leaps earlier in the year. Year over year is going to look freakily negative by March 2023.

sma3

I would be careful accepting that inflation is declining based on one reading.

I saw some data that this PCI report has Health Insurance premiums dropping 4% in a month.

That sounds pretty fishy to me

AndyJ

Not one reading -- the last four. But of course even that string of better reports doesn't mean it's necessarily going away.

davidrmoran

Read those twitter threads.

Old_Joe

I don't do twits.

davidrmoran

pity

the Wolfers thread is especially interesting

Today's refinement:

https://www.nytimes.com/2022/11/11/opinion/inflation-democrats-midterms.html

AndyJ

That's a reasonable refinement from PK today. Annualized 3m wage growth as a measure of underlying inflation makes sense ... and it's telling the same story as the CPI since July.

Old_Joe

Yes, the PK column today was very interesting. I really like his perspective on things financial. For some reason David's link won't work for me, but I subscribe to PK's column by email, so I'd already read it.

Sven

NYTimes is behind a paywall. However, Paul Krugman articles can be find in Apple News subscribers. Type in his name and search. Think this is the twitters posting davidmoran from earlier.

https://markets.businessinsider.com/news/stocks/paul-krugman-cpi-inflation-drop-soft-landing-economy-recession-prediction-2022-11

yogibearbull

PPI (wholesale) came below expectations at 8.0% y-o-y. Stock futures like the news.
https://www.cnbc.com/2022/11/15/wholesale-prices-rose-0point2percent-in-october-less-than-expected-as-inflation-eases.html

Sven

Another data point indicating that inflation is slowing. Treasury yields fell few basis points.

Another month of CPI and PPI improving data would help to slow rate hike in Dec.

davidrmoran

see if you can get to this

https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=116&emc=edit_pk_20221122&instance_id=78282&nl=paul-krugman&productCode=PK&regi_id=22268089&segment_id=113941&te=1&uri=nyt://newsletter/26c3b230-b724-5875-ba94-2fda5335b0b9&user_id=83d45440ead1d14c2a89a1e7221337d1

AndyJ

A key passage from PK's piece David linked:

I show rates of rent growth over a three-month period, a practice many economists have converged on in recent discussions: Monthly data are too noisy, but annual growth rates lag too far behind a rapidly changing economy.

Bingo.

davidrmoran

and duh
https://slate.com/business/2022/11/turkey-prices-thanksgiving-inflation-farm-bureau-debunked-wrong.html

Sven

Tracking rent growth is an interesting tool to track inflation since it tends to have less month-to-month fluctuation as many renters sign year-long leases. Additionally, housing expense (rent/mortgage+tax) constitutes one of the largest expenditure. There should be more rental demand now as fewer people can afford to buy new houses. For now the data is not showing higher rent.

For some states there are rent-controlled laws in place so to limit the rent rises. The wild card are those who don’t have a lease agreement. Fuel and food cost are volatile on monthly basis which are part of the CPI calculation.

AndyJ

davidrmoran said:

and duh
https://slate.com/business/2022/11/turkey-prices-thanksgiving-inflation-farm-bureau-debunked-wrong.html

And Eyewitless News reports it breathlessly.

davidrmoran

More, and by income class

https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=116&emc=edit_pk_20221129&instance_id=78809&nl=paul-krugman&productCode=PK&regi_id=22268089&segment_id=114490&te=1&uri=nyt://newsletter/35d0280f-2d60-5574-a079-e4ddc9ebd964&user_id=83d45440ead1d14c2a89a1e7221337d1

LewisBraham

@davidrmoran +1
Finally, a pundit with influence points out the significant tradeoffs to raising rates and how ultimately it hurts labor to combat inflation. It puts prices before people’s jobs. Wish more folks said this BEFORE the election:

None of this says that the Fed shouldn’t be trying to reduce inflation. But you shouldn’t invoke the plight of the poor as a reason for tight money. If anything, tight money, by leading to more slack in labor markets and therefore more unemployment, will disproportionately hurt lower-wage workers.

Crash

Yessir. It's 'gaslighting," is what it is.......