Inflation is Back, Meaning Growth is Back

Inflation is Back, Meaning Growth is Back

Inflation is Back, Meaning Growth is Back

$DIA, $SPY, $QQQ, $VXX

Underlying US consumer prices increased in October on the back of a pickup in rents and healthcare costs, bolstering the view that a recent dis-inflationary trend worrying the Fed probably had ended.

The rise in the consumer price index, excluding the volatile food and energy categories, reported by the Labor Department on Wednesday likely clears the way for the US central bank to raise interest rates in December.

October’s gain in the core CPI, which measures underlying inflation pressures, could comfort Fed officials concerned that stubbornly low inflation may reflect not only temporary factors but also more persistent developments.

The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead.

The core CPI rose 0.2% in October, also lifted by increases in the cost of used cars and trucks, tobacco, wireless phone services, airline fares, education and motor vehicle insurance. It edged up 0.1% in September.

October’s gain lifted the Y-Y increase in the core CPI to 1.8%. The Y-Y core CPI had increased by 1.7% for 5 months running.

Last month, owners’ equivalent rent of primary residence climbed 0.3%, quickening after September’s 0.2% increase. The cost of hospital services were up 0.5% and prices for doctor visits rose 0.2%.

Economists said the increase in healthcare costs suggested the Fed’s preferred inflation measure, the PCE (personal consumption expenditures) price index excluding food and energy, probably rose 0.2% in October, which would snap 5 straight monthly 0.1% gains.

That would raise the Y-Y increase in the core PCE price index to 1.4% from 1.3% in September.

The core PCE price index has consistently undershot the Fed’s 2 percent target for more than 5 years.

The Fed has lifted borrowing costs 2X this year and has projected 3 rate increases in Y 2018. The government will publish core PCE price index data later this month.

The USD was down 0.01 Vs a basket of currencies after an earlier slide, while prices for Treasuries were trading mostly higher.

Overall consumer prices, however, rose marginally in October as the boost to gasoline prices from hurricane-related disruptions to Gulf Coast Oil refineries was unwound.

The CPI nudged up 0.1 percent last month after jumping 0.5% in September. That lowered the Y-Y increase in the CPI to 2.0% from 2.2% in September.

Low inflation may be helping to underpin consumer spending.

In a separate report on Wednesday, the Commerce Department said retail sales increased 0.2% last month as heavy price discounting by automobile manufacturers buoyed purchases of motor vehicles.

Data for September was revised to show sales jumping 1.9%, which was the largest gain since March 2015, rather than the previously reported 1.6% advance. Retail sales increased 4.6% on an annual basis.

The slowdown in retail sales from September’s robust pace largely reflected an unwinding of the boost to building materials and gasoline prices after recent hurricanes.

Receipts at auto dealerships increased 0.7% after soaring 4.6% in September, supported by the deep price discounting by manufacturers. Sales at gardening and building material stores fell 1.2% last month after surging 3.0% in September.

Receipts at service stations decreased 1.2% in October. That followed a 6.4% gainer in September. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month after climbing 0.5% in September.

These core retail sales correspond most closely with the consumer spending component of GDP (gross domestic product). Last month’s increase in core retail sales indicated a healthy pace of consumer spending at the start of Q-4.

Consumer spending, which accounts for 70% of US economic activity, increased at a 2.4% annualized rate in Q-3.

Expect strong fundamentals for consumer spending, including continued job gains, firming real wage growth, and the recent strength in household net worth, to support solid gains in retail sales over the coming months.

Wednesday, the US major stock market indexes finished at: DJIA -138.19 at 23271.28, NAS Comp -31.66 at 6706.22, S&P 500 -14.25 at 2564.62

Volume: Trade on the NYSE came in at: 850-M/shares exchanged

  • NAS Comp +24.6% YTD
  • DJIA +17.8% YTD
  • S&P 500 +14.6% YTD
  • Russell 2000 +7.9% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Very Bullish (0.51) Very Bullish (0.53) Bullish (0.42) Very Bullish (0.58)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.42) Bullish (0.44) Bullish (0.31) Very Bullish (0.50)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.47) Bullish (0.47) Bullish (0.42) Very Bullish (0.53)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Neutral (-0.19) Neutral (-0.03) Neutral (-0.05) Very Bearish (-0.50)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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