Consumer Prices Up 0.4% in September, up 8.2% Over Last Year… Core inflation excluding food and energy rose 6.6% over last year.
What it means— Headline inflation dropped again in September, but just barely. While energy prices eased, consumers paid more for shelter, medical care, and new vehicles, among other things. The Food Index increased 11.2%. The numbers remained large enough to keep the Fed on track to raise rates by at least 50 basis points in early November, unless something changes dramatically over the next three weeks.
Keep an eye on shelter. Per the U.S. Bureau of Labor Statistics (BLS), both owners’ equivalent rent (OER) and rent increased by 0.8% last month, with OER up 6.7% for the year and rent up 7.2%. Together, these categories make up 32.47% of all inflation. Reports from Redfin and Apartmentlist.com show rents, which they measure in real time, falling over the past couple of months.
If the private companies are correct, then the BLS will catch up to easing inflationary pressure from shelter in the months ahead, just as we’ve been suggesting. This could lead the Fed to reduce how much it will raise rates in December, even if it doesn’t pause the rate hikes or pivot back to easing.
British Bond Prices Drive U.S. Rally After CPI… Rumors that British Prime Minister Liz Truss would dial back some of her new tax cuts and thereby lower the country’s expected deficits led investors to bid up the price of British government bonds and the British pound. The rising pound and falling dollar led to a reversal on Wall Street that saw the Dow move more than 1,500 points in one day, ending up by more than 800 points.
What it means— Part of the rumor was confirmed on Friday when Truss fired Chancellor Kwasi Kwarteng, although investors are still waiting for confirmation of the change in tax policy. It would be great if the British bond rally was enough to turn around the equity markets across the globe, but that’s giving the gilts, as they are called, too much credit. The markets were oversold, and now they’ve recovered a bit. We still have the Fed raising rates and a potential energy crisis looming over Europe in the months to come. While this may be a good time to establish small positions in stocks you want to own for the longer term, don’t be surprised if this isn’t the bottom.
President Biden Considering Consequences for Saudi Arabia and OPEC+ Cutting Supply Quota… After being outed by the Saudis that Biden was just asking for the cuts to be delayed until after the election, in an interview on Tuesday, the President threatened consequences for the two million barrel per day production cut. Energy prices are expected to rise in the weeks ahead. The President refused to say what the consequences might be.
What it means—In the years ahead, we might look back on this moment as the clear turning point in U.S.–Middle East relations, and it won’t be a good thing. We’re demanding domestic energy producers move away from fossil fuels even as we import roughly 6.5 million barrels of oil every day. We are now telling foreign providers that we might reverse weapons sales or go after them for violating U.S. monopoly laws because we don’t like how they do business.
It will be a low point in diplomacy and geopolitics on the day that we announce such an action and the OPEC+ members simply say, “Okay,” and go about business as usual. The next step for them would be to stop pricing all energy sales in dollars, which will hurt us a lot more than them.
Minutes of September Federal Reserve Meeting Shows Hawkish Stance… The minutes of the meeting showed participants willing to err on the side of tightening too much, and therefore weakening the economy too much, to get inflation under control.
What it means— None of it was a surprise, particularly because the central bankers raised rates by 75 basis points at that meeting and their dot plot showed that they expected to do so again in November. But some things have changed in the past few weeks that might have given the bankers pause.
The global currency market is showing signs of stress and other economies are weakening. The more the Fed raises rates when other central banks don’t, the more financial pain it causes around the world. As hard as this has been for the eurozone and the U.K, developing nations have it worse. The Fed must consider the global consequences of raising rates.
Retail Sales Flat in September, up 8.2% Over Last Year… Retail sales and food services rose the same amount as inflation over the last year. While the two measures don’t cover the exact same things, it shows that retail spending broadly matched rising prices instead of representing higher levels of spending.
What it means— The move from buying stuff to experiences continued in September. Retail sales at non-store retailers (e-commerce) dropped 0.5% last month and at miscellaneous store retailers fell 2.5%, while spending at food services and bars increased 0.5%.
Retailers must be holding their collective breath to see what happens as we get into the holiday season. The early indications aren’t good. Amazon’s two-day Prime Day event this week generated little enthusiasm. Real-time commerce analysis company Klover estimates that households spent 40% less during this week’s event than they did during the Prime Day event in July. If that trend holds, Black Friday won’t be very black.
Finally, in the “Stupid is. Stupid does” category:
City of St. Louis Threatens to Sue Kia and Hyundai Because Thieves Target Their Vehicles… City Counselor Sheena Hamilton penned a letter to the car companies accusing them of making defective vehicles that give thieves the opportunity to destroy property, endanger themselves and others, and commit violent felonies.
Apparently, the defect is the lack of an electric anti-theft security device called an immobilizer on model years 2010–2021. There has been a TikTok challenge online to steal these vehicles, which led to a dramatic increase in such car thefts. For their part, the companies note that the vehicles meet all safety specifications, that additional steering wheel locks are available at dealerships, and that all new models include the electric anti-theft measures.
What the letter from the city of St. Louis to the car manufacturers does not make clear is why city leaders would blame theft, property destruction, and other illegal activity on the carmakers instead of the criminals who perpetrate the crimes.
If the victims used public transportation instead of owning a car, they wouldn’t be victimized … by car thieves, anyway.
Data supplied by HS Dent Research
“When the facts change, I change my mind.
What do you do?” ~ John Maynard Keynes
Our plan is “the plan will change.”
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