The Big Money Show discusses JPMorgan Chase CEO Jamie Dimons’ warnings about the U.S. economy. The panel analyzes economic risks, high interest rates and persistent inflationary pressures.
Inflation The trend accelerated in September, with the pace of growth in consumer prices tending to accelerate due to rising energy prices.
The Bureau of Labor Statistics (BLS) said Wednesday that the consumer price index (CPI) — a broad measure of the cost of everyday goods like gasoline, groceries and rent — increased 0.6% on a monthly basis and 3.7% from a year ago.
Expectations and reality
The monthly figure was in line with estimates from economists surveyed by LSEG, while the annual figure was 3.6% higher than the estimate. Monthly data throughput recovered from a reading of 0.4% in August, while the annual figure is also trending upward from 3.4% the previous month.
So-called core prices, which exclude volatile measures of gasoline and groceries to better gauge price growth trends, rose 0.3% on a monthly basis and 2.6% from a year ago. Both figures were higher than the expectations of economists surveyed by LSEG, who predicted a monthly increase of 0.2% and an annual increase of 2.5%.
The monthly figure cooled slightly from August, when it rose 0.3%, while the annual figure increased from 2.4% in the previous report.
THE U.S. ECONOMY GROWED AT A FASTER THAN EXPECTED PACE IN THE SECOND QUARTER
The distribution of the cost of living
High inflation has created serious financial pressures in recent years for most American households, who are forced to pay more for daily necessities like food and rent. Price hikes are particularly difficult for low-income Americans, because they tend to spend more of their already strained wages on necessities and have less flexibility to save.
Energy prices increased by 5.2% on a monthly basis in September and by 20.4% compared to last year. This increase follows a monthly increase of 2.1% in August.
Gasoline prices rose 9.1% from the previous month in September and are up 34.2% on a year-over-year basis, and the BLS noted that the gasoline index accounted for more than half of the monthly increase in the overall CPI. Electricity costs increased by 0.2% on a monthly basis and by 4.4% over the past 12 months.
Inflation rose more than expected in September. (Li Rui/Xinhua via Getty Images)
WHY THE FED IS NOT READY TO DECLARE VICTORY OVER INFLATION
Food prices remained unchanged for the month of September and are up 2.5% compared to last year. The Meals at Home Index decreased 0.1% on a monthly basis and is up 1.8% from a year ago. The index for food consumed away from home increased by 0.2% for the month and by 3.5% compared to last year.
The meat, poultry and fish index decreased 0.4% from the previous month in September and is up 2.2% from a year ago. Beef and veal prices fell 1% in September and are up 3.5% from a year ago. Egg prices fell 1.3% in September and 20.6% from last year, as supplies normalize after an outbreak of bird flu.
The fruits and vegetables index increased by 0.5% on a monthly basis in September and by 3.7% compared to a year ago. Coffee prices increased by 0.9% in September and by 7.1% compared to last year.
House prices rose 0.4% month-on-month in September and are 3.2% higher than a year ago. Renters and household insurance costs increased 0.2% on a monthly basis and 3% year-over-year.
The transportation services index showed prices up 0.6% on a monthly basis and 2.7% from a year ago. Airfares increased 1.2% month-on-month in September and 22.4% year-over-year.
FEDERAL RESERVE RAISES INTEREST RATES FOR FIRST TIME SINCE 2023 AMID HEADING INFLATION
What the experts say
Adam Schickling, Vanguard’s senior economist, said “the latest inflation report reinforces what we’ve been saying for several months: inflation is proving more persistent than expected, particularly in services.” While energy remains a factor, more importantly, demand has remained remarkably resilient.”
“We are entering a phase where stronger productivity, moderate wage growth and more price-sensitive consumers should help bring down inflation, but patience will be required,” Schickling added.
Tim Urbanowicz, chief investment strategist for innovative ETFs at Goldman Sachs Asset Management, said “today’s report calls into question the Fed’s market-built tactical pause for October.”
“With crude over $100 adding friction to already sticky baseline prices, the latest data increasingly complicates the disinflation story and could limit the Fed’s flexibility,” Urbanowicz added.
Federal Reserve Chairman Kevin Warsh and central bank policymakers will make their next interest rate decision in late October. (Li Yuanqing/Xinhua via Getty Images)
What does this mean for the Fed?
The Federal Reserve will hold its next monetary policy meeting on October 27-28 and market interest rate expectations have shifted toward a rate hike.
The probability that the Fed will leave the benchmark federal funds rate within its current target range of 3.75% to 4% rose from 77.9% on Tuesday to 58.5% on Wednesday following the September CPI inflation report, the CME FedWatch tool showed.
The odds of a 25 basis point rate hike rose from 22.1% yesterday to 41.5% on Wednesday, according to the tool.
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How did the market react?
The benchmark S&P 500 fell 0.95% Wednesday morning.
The Dow Jones Industrial Average fell 0.13%, while the Nasdaq Composite fell 1.42%.
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