Tag Archives: Inflation

Business

UK inflation falls from 41-year high as fuel price surge eases

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LONDON — U.K. inflation came in slightly below expectations at 10.7% in November, as cooling fuel prices helped ease price pressures, though high food and energy prices continued to squeeze households and businesses.

Economists polled by Reuters had projected an annual increase in the consumer price index of 10.9% in November, after October saw an unexpected climb to a 41-year high of 11.1%. On a monthly basis, the November increase was 0.4%, down from 2% in October and below a consensus estimate of 0.6%.

The Office for National Statistics said the largest upward contributions came from “housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.”

The largest downward contributions over the month came from “transport, particularly motor fuels, with rising prices in restaurants, cafes and pubs making the largest, partially offsetting, upward contribution.”

The Bank of England will announce its next monetary policy move on Thursday. It is widely expected to raise interest rates by 50 basis points, as it juggles sky-high inflation and an economy that policymakers say is already in its longest recession on record.

The country faces widespread industrial action over the Christmas period, as workers strike to demand pay rises closer to the rate of inflation and better working conditions.

The independent Office for Budget Responsibility projected that the U.K. will suffer its largest fall in living standards since records began, as real household income is expected to decline by 4.3% in 2022-23.

U.K. Finance Minister Jeremy Hunt last month announced a sweeping £55 billion ($68 billion) fiscal plan, including a slew of tax rises and spending cuts, in an attempt to plug a substantial hole in the country’s public finances.

A positive step, but risks remain

While the dip in Wednesday’s figures is a step in the right direction, the persistent problem of rising food prices and household energy bills remains a thorn in the side of the British economy, noted Richard Carter, head of fixed interest research at Quilter Cheviot.

However, Carter suggested inflation may finally be passing its peak, after the U.S. also posted a better-than-expected CPI print on Tuesday.

“Temperatures have taken a sharp dive in the last week or so, and the demand for gas will no doubt have increased as people are forced to heat their homes,” Carter added.

“As the autumn had been rather mild, we will only now begin to see the real impact of higher energy bills. While the government support remains in place for now, any changes made once the April deadline is reached could have a knock-on effect on inflation.”

The Bank of England faces a tricky task in trying to drag inflation back towards its 2% target while remaining cognizant of a weakening economy. This was evident in the latest U.K. labor market data earlier this week, which showed an uptick in both unemployment and wage growth.

“While inflation is falling, it remains well ahead of wages, and we are heading into a new winter of discontent with strikes concentrated in the unionised public sector and former nationalised industries as a result,” Carter said.

The market is pricing a 50 basis point interest rate hike from the Bank on Thursday, taking the benchmark rate to 3.5%. Policymakers have signaled a potential slowing of the pace of hikes in 2023. However, inflation remains well above target.

“The Chancellor’s Autumn Statement in November helped to settle the waters following months of significant turbulence, but inflation remains far above the Bank’s 2% target, which means there is still a long way to go yet,” Carter said.

“A rapid fall in inflation is highly unlikely, but it is positive to see it finally moving in the right direction.”

This is a breaking news story, please check back later for more.

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Business

US consumer price inflation eased more than expected in November

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US consumer price inflation eased more than expected in November to its lowest level in almost a year, bolstering the Federal Reserve’s plans to slow the pace of interest rate rises this week.

The rate of increase in the consumer price index fell to 7.1 per cent last month, lower than the 7.3 per cent forecast by economists and down from 7.7 per cent in October. It is the lowest level since December 2021.

Overall CPI rose 0.1 per cent from the previous month, less than the 0.4 per cent increase in October.

US stocks initially soared after the release, as investors bet that the central bank might not have to squeeze the economy as aggressively as feared to bring inflation under control. Those gains ebbed throughout the trading day, with the S&P 500 up 0.6 per cent.

Government bonds also rallied, sending the yield on two-year US Treasury bonds, which is sensitive to changes in interest rate expectations, down by 0.22 percentage points to 4.18 per cent at one point. It later traded around 2.24 per cent.

The inflation report, released by the Bureau of Labor Statistics on Tuesday, came at the start of the Federal Open Market Committee’s final two-day policy meeting of the year.

On Wednesday, the central bank is set to raise its benchmark policy rate by half a percentage point, breaking successive 0.75 point interest rate increases.

If that increase is implemented, the federal funds rate will move up to a new target range of 4.25-4.5 per cent, which most officials believe is still not high enough to bring inflation back down to the Fed’s longstanding 2 per cent target.

“One [inflation] number won’t be enough for the Fed, but it certainly is going to put the Fed in a better mood than they have been over the past number of weeks,” said Padhraic Garvey, regional head of research for the Americas at ING. But he warned that inflation could “quite easily” surprise next month.

“The sensible thing from [the Fed’s] perspective is to deliver the [half-percentage point move], do it in a hawkish manner and don’t have a victory lap just yet.

“If they go all dovish tomorrow, the market will read that and will loosen up financial conditions further and it just takes away the value of the hike in the first place.”

Energy and goods prices have begun to slow this year, having previously helped to push up the annual increase in the CPI index to 9.1 per cent in June. But services-related costs have risen at an alarming pace, bolstered in part by an acceleration in wage growth as a result of the surprisingly resilient labour market.

In November, housing-related costs were the biggest driver of the monthly increase in consumer prices, rising 0.6 per cent compared to October and 7.1 per cent on an annual basis. Home prices have fallen materially this year as mortgage expenses have jumped, but those declines take time to show up in the data, suggesting further downward pressure on inflation next year.

Transportation costs and those related to medical services posted monthly declines, despite having increased 14 per cent and nearly 5 per cent respectively compared to November last year. Food prices remain elevated, however, registering a 0.5 per cent monthly increase.

Fed officials have acknowledged that getting inflation under control will require a sustained period of low growth and higher unemployment, but have stopped short of forecasting an outright recession. Most economists say an economic contraction will be necessary and anticipate a mild one next year.

President Joe Biden cheered the slower increase in the CPI in a statement from the White House on Tuesday.

“In a world where inflation is rising at double digits in many major economies around the world, inflation is coming down in America,” he said. “Make no mistake: prices are still too high. We have a lot more work to do, but things are getting better.”

Biden said he hoped prices would be “much closer” to “normal” by the end of next year. “We could see setbacks along the way . . . We shouldn’t take anything for granted. But what is clear is my economic plan is working and we’re just getting started. My goal is simple: get price increases under control without choking off economic growth.”

Additional reporting by Harriet Clarfelt in New York and James Politi in Washington

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US

Biden expresses hope that inflation will normalize by late next year

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The race will unfold on a blindingly fast timeline. Gov. Glenn Youngkin (R) set the special election for Feb. 21, with a filing deadline of Dec. 23. But because the 4th District is solidly blue, the race for the Democratic nomination is where the real contest will be. And on Monday night, the 4th Congressional District Democratic Committee set the firehouse primary date for Dec. 20 — meaning Virginians in the 4th will be in for one hectic week of intense campaigning. Committee members said the timeline was out of their hands, requiring them to have a nominee selected by Dec. 23.

State Sen. Joseph D. Morrissey (D-Richmond) is also expected to make an announcement concerning the 4th District seat on Tuesday morning, although he did not provide more details. Joseph Preston, who served one year in the House of Delegates in 2015, is also running.

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Business

Mortgage rates drop after CPI inflation report

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A prospective home buyer, left, is shown a home by a real estate agent in Coral Gables, Florida.

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The average rate on the 30-year fixed mortgage dropped to 6.28% Tuesday, according to Mortgage News Daily. It is now at the lowest level since mid-September.

The decline came after a lower-than-expected reading of the November’s consumer price index, a widely watched measure of inflation. The report sent investors rushing into U.S. Treasury bonds, causing yields to drop. Mortgage rates follow loosely the yield on the 10-year Treasury.

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“The second consecutive month of reassuring CPI data continues to build a case that inflation has turned a corner, but rates will be careful about reading too much into that potential shift given the volatility of the data in recent months,” said Matthew Graham, chief operating officer at Mortgage News Daily. “The bond market will also want to see what the Fed does with this info in tomorrow’s updated Fed rate forecasts in the dot plot.”

Mortgage rates began rising at the start of this year and accelerated in the spring and summer, with the 30-year fixed going from around 3% to well over 7% by the end of October. That sent the housing market into an early deep freeze. Sales of existing homes have fallen for nine straight months and were down 24% in October year-over-year, according to the latest read from the National Association of Realtors.

But rates then fell sharply in November, after the CPI report for October indicated that inflation was cooling. The rate ended November at 6.63%. Some suggested, albeit cautiously, that the drop in rates might be bringing buyers back to the market.

“There are some very very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better,” Doug Yearley, CEO of luxury homebuilder Toll Brothers, said on the company’s quarterly earnings call with analysts last week. Yearly was referring to a very brief rate drop in August.

Redfin reported homebuyer demand “has started ticking up” in November. It’s demand index, which measures requests for home tours and other homebuying services from Redfin agents, was up 1.5% from a month earlier but down 20% from a year earlier during the four weeks ending Nov. 27.

“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods,” said Redfin deputy chief economist Taylor Marr. “Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down.”

All that optimism, however, did not translate into higher mortgage rate locks for homebuyers, which are generally an indicator of future home sales. Those rate locks fell 22% in November, compared with October, and were down 48% year-over-year, according to mortgage tech and data firm Black Knight.

“It’s still extremely unaffordable even with rates coming down, even with prices coming down in each of the last four months. We’re still less affordable than we were at the peak of the market in 2006, and you’re seeing that play out in the rate lock numbers,” said Andrew Walden, vice president of enterprise research strategy at Black Knight.

Walden points to inventory still being about 40% shy of where it should be, while the homebuilders continue to pull back and potential sellers stay on the sidelines. Even as prices weaken and rates come down, he said both are still substantially higher than they should be compared with incomes to make housing affordable by historical standards. And none of those are going to move that much any time in the near future.

“As we move throughout 2023 you’re going to see prices continue to soften, you’re going to see incomes hopefully continue to grow and eat up some of that gap, and I think likely we are going to see rates come down from where they are today, but it’s going to take an extended period of time to get there,” said Walden.

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Business

Inflation rose at annual 7.1% over last year

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Inflation slowed again last month, more than expected, as the Federal Reserve raised interest rates at the fastest pace in decades.

The Consumer Price Index (CPI) in November showed a 7.1% increase over last year and 0.1% increase over the month, the Bureau of Labor Statistics said Tuesday. Economists had expected prices to rise at an annual 7.3% clip and 0.3% month-over-month, per Bloomberg data.

On a “core” basis, which strips out the volatile food and energy components of the report, prices climbed 6.0% year-over-year and 0.2% over November. Consensus estimates called for a 6.1% annual increase and 0.3% monthly increase in the core CPI reading.

The report propelled U.S. stocks forward and sent Treasury yields lower as Wall Street weighed the implication of softer prints on Federal Reserve policy. Contracts on the S&P 500 rallied 2.8%, while futures on the Dow Jones Industrial Average soared more than 700 points. Nasdaq futures jumped 3.8%.

While November’s figures showed a modest deceleration in inflation, the costs of essential items and housing facing U.S. consumers still remain stubbornly high and well above the Federal Reserve’s long-term price stability target of 2%.

The Fed keeps a closer eye on “core” inflation, which offers policymakers a more nuanced look at inputs like housing. The headline CPI figure, in contrast, has moved largely in tandem with erratic energy prices this year.

The energy index declined 1.6% for the month after a 1.8% rise in October. The downshift was driven in part by a 2% slide in the gasoline category of the measure after gas prices rose 4% in October.

While falling energy prices sent headline inflation lower last month, the shelter category of CPI — which accounts for 30% of overall CPI and 40% of the core reading — was the dominant contributor to the monthly all-items increase and more than offset declines in energy indexes. The cost of shelter rose 7.1% over the last year, comprising nearly half of the total increase in core CPI, the Bureau of Labor Statistics said.

“Housing costs have a unique, symbiotic relationship with inflation,” Bright MLS Chief Economist Lisa Sturtevant said in a note.

In a speech at the Brooking Institution in Washington D.C. last month, Federal Reserve Chair Jerome Powell emphasized that housing inflation has risen rapidly, while inflation in other core services “has fluctuated but shown no clear trend.”

WASHINGTON, DC – NOVEMBER 30: Chair of the U.S. Federal Reserve Jerome Powell speaks at the Brookings Institution. (Photo by Drew Angerer/Getty Images)

Meanwhile, food prices rose 0.5%, little changed from the 0.6% increase seen in October. Four of the six major grocery store food group increased over the month.

Tuesday’s key inflation report – perhaps the last major economic release of 2022 – also comes as the Federal Reserve kicks off its final meeting of the year. On Wednesday, members of the policy-setting Federal Open Market Committee (FOMC) are poised to lift interest rates by 50 basis points, a slowdown from the 0.75% increases delivered over the past four meetings.

Lighter than expected inflation data is unlikely to stop officials from raising their benchmark policy rate by the projected 0.50% at the end of their meeting or proceed with another estimated 75 basis points worth of hikes in the new year. But it may affirm recent signals by policymakers that indicate a slowdown in the pace of increases.

“Another downside inflation surprise not only validates a Fed decision to slow the pace of rate hikes, it also raises hopes that the inflation surge may actually be tamed within the next 12 months,” Seema Shah, chief global strategist at Principal Asset Management said in emailed comments.

“Yet, Powell will likely maintain an element of caution in his comments tomorrow,” Shah added, pointing to wage inflation from a continuously strong labor market that still poses a problem for Fed officials.

November’s jobs report released earlier this month saw non-farm payrolls rise by 263,000, bringing the three-month average to a robust 272,000 and revising away the moderation in average hourly earnings. The labor force participation rate fell to 62.1%, suggesting a substantial amount of job openings remain — a factor that continues to put upward pressure on wages.

“The difference between inflation at 5% and inflation at 3% next year lies in the ability of the Fed to slow the labor market further, which likely requires further monetary tightening and absolutely no rate cuts.” Shah said.

(This post is breaking. Please check back for updates.)

—

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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Business

Dow Jones Surges 500 Points Ahead Of Inflation Data; Fed Meeting; Tesla Stock Nears 2022 Low

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Dow Jones futures were higher ahead of Tuesday’s open after the Dow Jones Industrial Average rallied 528 points Monday. Tesla stock skidded more than 6% Monday, finishing just off its 2022 lows.




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Inflation Data, Fed Meeting

Consumer inflation data is due out Tuesday morning. The CPI is expected to rise 0.3% for the month of November and 7.3% year over year, per Econoday estimates. In addition, the next Federal Reserve policy meeting takes place on Tuesday and Wednesday.

While the Fed has already forecast a 50-basis-point hike, investors will be looking for further guidance on the Fed’s plans. A pivot from aggressive tightening looks unlikely, but some respite from punishing rate hikes would be welcome. According to the CME’s FedWatch tool, traders place a 74% chance of a 50-basis-point rate hike.

The 10-year Treasury yield ticked higher to 3.61% Monday.

Late Monday, Oracle (ORCL) jumped 3% after the company’s earnings and sales numbers topped analyst estimates. More earnings reports this week include Darden Restaurants (DRI) and Lennar (LEN).

Stock Market Today

On Monday, the Dow Jones Industrial Average rose 1.6%, or 528 points, and the S&P 500 climbed 1.4%. The tech-heavy Nasdaq composite followed up with a 1.3% rise. Among exchange traded funds, the Nasdaq 100 tracker Invesco QQQ Trust (QQQ) moved up 1.3% and the SPDR S&P 500 (SPY) rose 1.4%.

Electric-vehicle giant Tesla (TSLA) traded down 6.3% Monday. Among Dow Jones stocks, Apple (AAPL) rallied 1.6% and Microsoft (MSFT) gained 2.9% in today’s stock market.

Allegro MicroSystems (ALGM), IBD Leaderboard stock Dexcom (DXCM), KLA (KLAC) and Trane Technologies (TT) — as well as Dow Jones names Caterpillar (CAT), Home Depot (HD) and UnitedHealth Group (UNH) — are among the top stocks to buy and watch.

Dexcom and Trane are IBD Leaderboard stocks. UnitedHealth was featured in this week’s Stocks Near A Buy Zone column. Allegro was a recent IBD 50 Stocks To Watch pick. Caterpillar and Dexcom were recent IBD Stock Of The Day companies.

4 Top Growth Stocks To Buy And Watch In The Current Stock Market Rally

Dow Jones Futures Today: Oil Prices

Ahead of Tuesday’s opening bell, Dow Jones futures rose 0.6% vs. fair value, while S&P 500 futures moved up 0.5%. The tech-heavy Nasdaq 100 futures gained 0.5% vs. fair value. Remember that overnight action in Dow Jones futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

U.S. oil prices rallied more than 3% Monday, rebounding from their year lows. West Texas Intermediate futures traded just above $73a barrel.

IBD’s latest newsletter, MarketDiem, gives you actionable ideas for stocks, options and crypto right in your inbox.

What To Do In The Stock Market Rally

Now is an important time to read IBD’s The Big Picture column with the stock market trend back in a “confirmed uptrend.”

Even though the Nasdaq and S&P 500 indexes remain in uptrends, defense is still better than offense at this point due to the ongoing market volatility. That means it’s OK to look for stocks to buy, but keep positions small to start, while keeping your overall exposure light.

When it comes to new buys, what kind of feedback are you getting from the market? Are your latest buys making solid progress? In that case, it’s OK to give them some room. But don’t be afraid to take partial profits if a gain hits at least 10%. If new buys go the wrong way, or are met with immediate selling, cut losses when the stock is down 3% to 4%, instead of waiting for the 7% -8% rule to trigger.

(Check out IBD Stock Lists like the IBD 50 and Stocks Near A Buy Zone, for additional stock ideas.)

Five Dow Jones Stocks To Buy And Watch Now

Dow Jones Stocks To Buy And Watch: Caterpillar, Home Depot, UnitedHealth

Dow Jones member Caterpillar is moving closer to a cup base’s 238 buy point, according to IBD MarketSmith pattern recognition, in the wake of Monday’s 2.5% gain. CAT stock shows a solid 95 out of a perfect 99 IBD Composite Rating, per the IBD Stock Checkup.

Home improvement retailer Home Depot ended Monday less than 1% below a cup-with-handle base’s 329.77 buy point following the session’s 2.3% advance.

Health care giant UnitedHealth Group is tracing a flat base with a 558.20 buy point. Shares are just 2% away from the latest entry Monday.

Top Stocks To Buy And Watch: Allegro, Dexcom, KLA, Trane

Allegro MicroSystems ended Monday in buy range past a cup with handle’s 32.07 buy point following the day’s slight rise. ALGM stock traded up 0.1% Monday. And the 5% chase zone goes up to 33.67.

IBD Leaderboard stock Dexcom tried to break out past a 123.46 buy point in a flat base, but is about 5% below the entry after recent losses. Dexcom stock was up 0.3% Monday.

Chip leader KLA is moving further above a cup with handle’s 392.60 entry after Monday’s 1.9% advance. Bullishly, the relative strength line continues to make new highs in the ongoing market volatility.

Trane Technologies ended Monday about 4% below a 181.72 buy point in a cup with handle after the session’s slight fall.

Join IBD experts as they analyze leading stocks in the current stock market rally on IBD Live

Tesla Stock

Tesla stock skidded 6.3% Monday, giving up the entirety of Friday’s gains and heading back toward its recent lows.

In recent weeks, TSLA stock hit its lowest level since Nov. 23, 2020, reaching a new 52-week low price at 166.19. Shares closed Monday at 167.82, about 58% off their 52-week high.

Dow Jones Leaders: Apple, Microsoft

Among Dow Jones stocks, Apple shares rallied 1.6% Monday but are still below their 50-day line after last week’s losses. The stock is more than 20% off its 52-week high.

Microsoft jumped 2.9% Monday, as shares continue to hold above the 50-day line. The software giant remains about 27% off its 52-week high.

Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the Dow Jones Industrial Average.

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How To Research Growth Stocks: Why This IBD Tool Simplifies The Search For Top Stocks



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World

Asia-Pacific shares, U.S. CPI, inflation

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Pedestrians cross a road in front of the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, on Thursday, Oct. 29, 2020.

Kiyoshi Ota | Bloomberg via Getty Images

Asia-Pacific shares opened in positive territory as investors look ahead to a highly anticipated Federal Reserve meeting and U.S. CPI data reading.

Hong Kong’s Hang Seng index was up 0.67% after Chief Executive John Lee announced further easing of Covid restrictions.

Australia’s S&P/ASX 200 was up 0.17%. The Nikkei 225 in Japan added 0.29%, while the Topix inched up 0.40%.

Korean benchmark Kospi dropped fractionally and the Kosdaq shed 0.22%. The MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.42%.

In mainland China, the Shenzhen Component shed 0.174%, while the  Shanghai Composite climbed 0.07%.

Hong Kong will post its industrial production data for the third quarter, and the Bank of Korea will also post minutes from its November meeting.

Australian business sentiment fell into negative territory for the first time since December last year.

Traders are bracing for the release of the U.S. consumer price index report for November and hoping for signs of easing inflation. Economists surveyed by Dow Jones expect a 0.3% increase on a monthly basis, which would mark a step down from October’s 0.4%

Overnight in the U.S., the blue-chip Dow gained 528.58 points, or 1.58%, to 34,005.04, marking its first close over 34,000 since Dec. 2. The S&P 500 climbed 1.43% to close at 3,990.56, and the Nasdaq Composite added 1.26% to stand at 11,143.74.

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Business

Stock futures are flat as investors await key November inflation report

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Stock futures were flat early Wednesday as Wall Street braced for November’s key inflation report and the beginning of the Federal Reserve December policy meeting.

Futures tied to the Dow Jones Industrial Average inched 0.01% lower, while futures connected to the S&P 500 and Nasdaq 100 traded flat, declining 0.08% and 0.14% respectively.

Oracle shares gained nearly 2% after hours on strong quarterly results.

Investors are looking ahead to the release of November’s consumer price index report, and hoping for signs of easing inflation. Economists surveyed by Dow Jones expect a 0.3% increase on a monthly basis or an annual pace of 7.3%. That would be a step down from October’s 0.4% monthly increase and annual gain of 7.7%.

Tuesday’s inflation report could play a key role in the Federal Reserve’s next rate-hiking decision expected at the conclusion of its two-day policy meeting on Wednesday.

Traders are largely pricing in a 50 basis point increase, a slight decline from the previous four hikes. They will also monitor updated economic projections and commentary out of Chair Jerome Powell’s press conference for signs of a potential policy pivot as fears of a recession linger on Wall Street.

Monday’s overnight moves follow a solid session for all the major averages after a tough down week. The Dow gained more than 528 points, or 1.58%, while the S&P and Nasdaq rose 1.43% and 1.26%, respectively.

All major S&P 500 sectors finished with gains, led to the upside by energy stocks, which rose as oil prices gained.

“I think this is a reflection of what’s anticipated out of the CPI number tomorrow, and a hope that the Fed will confirm a 50 basis point raise on Wednesday,” said Kevin Philip, partner at Bel Air Investment Advisors. “I think the market, as it’s done before, is banking, in my opinion, a little too heavily on some sort of Fed pivot and this bounce we got today is fragile at best.”

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Business

Inflation Forecasts Were Wrong Last Year. Should We Believe Them Now?

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At this time last year, economists were hopeful that snarls in global shipping and manufacturing would soon clear; consumer spending would shift away from goods and back to services; and the combination would allow supply and demand to come back into balance, slowing price increases on everything from cars to couches. That has happened, but only gradually. It has also taken longer to translate into lower consumer prices than some economists had expected.

But the expected shift is finally, if belatedly, showing up. After months of supply chain healing, consumers are now beginning to feel the benefit. Used car prices began declining meaningfully in October inflation data, furniture prices are slumping and apparel is falling in price. Similar cost declines are expected to weigh on inflation next year.

“It is far too early to declare goods inflation vanquished, but if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months,” Jerome H. Powell, the Fed chair, said during a recent speech.

Unfortunately, moderation in goods prices alone would probably fail to return America to a normal inflation rate, because price increases for services have been accelerating. That category — which covers everything from meals out to monthly rent — accounted for half of consumer price inflation in October, based on a Bloomberg breakdown, up from less than a third a year earlier.

Many types of service inflation are closely intertwined with what’s happening in the job market. For companies including hair salons, restaurant chains and tax accountants, paying employees is typically a major, if not the biggest, cost of doing business. When workers are scarce and wages are climbing rapidly, businesses are more likely to raise their prices to try to cover heftier labor bills.

That means that today’s very low unemployment and abnormally rapid wage growth could help to keep price increases faster than usual, even though the job market wasn’t a big driver of the initial burst in inflation.

That is where Fed policy could come in. Companies can only charge more if their customers are able — and willing — to pay more. The Fed can stop that chain reaction by lifting interest rates to slow demand.

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Business

Treasury Secretary Yellen predicts major inflation cooldown in 2023

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New York
CNN
 — 

Treasury Secretary Janet Yellen is striking a cautiously optimistic tone about 2023, predicting a major inflation cooldown and stressing that a recession isn’t required to get prices back under control.

“I believe by the end of next year you will see much lower inflation, if there’s not an unanticipated shock,” Yellen told CBS’s “60 Minutes” in an interview that aired on Sunday.

Yellen cited plunging gas prices — AAA said Monday the national average is down by 52 cents per gallon in the past month — tumbling shipping costs and shortening delivery lags.

“I hope that it will be short-lived,” Yellen said of the current period of high inflation. “We learned a lot of lessons from the high inflation we experienced in the 1970s. And we’re all aware that it’s critically important that inflation be brought under control and not become endemic to our economy. And we’re making sure that won’t happen.”

Yellen, like many economists and even the Federal Reserve, has previously been overly optimistic about inflation. She admitted earlier this year that she was “wrong” about the path of inflation, telling CNN’s Wolf Blitzer in June that she “didn’t — at the time — fully understand” the “large shocks to the economy” that would come from Russia’s war in Ukraine.

The comments come after Friday’s hotter-than-expected wholesale inflation report, which showed producer prices increased in November at the slowest annual pace in 18 months.

The more closely watched consumer inflation report due out on Tuesday this week is expected to show a similar cooldown of consumer prices.

The Federal Reserve is widely expected to deliver a seventh-straight interest rate hike on Wednesday, though investors are betting the US central bank will slow the pace of rate increases from three-quarters of a point to half a point. The Fed’s aggressive rate hikes have driven up borrowing costs — credit card rates are at record highs — and raised fears of a recession.

Yellen conceded a recession is possible in the months ahead — though the former Fed chair emphasized that one isn’t required to tame inflation.

“There’s a risk of a recession,” Yellen said. “But it certainly isn’t, in my view, something that is necessary to bring inflation down.”

Like other Biden administration officials, Yellen argued the economy is in the midst of a healthy transition from blockbuster growth to something more sustainable.

“We had a very rapid recovery from the pandemic. Economic growth was very high,” Yellen said. “To bring inflation down and because almost anyone who wants a job has a job, growth has to slow.”

Yellen said the US economy is at or near full employment, meaning it’s “not necessary” for rapid growth to get people back to work.

The Treasury secretary said she tries to instill a sense of compassion and urgency into policymaking by stressing to her staff that real people are suffering.

Yellen recalled how in 2009 when millions of people were out of work in the middle of the Great Recession, she reminded her staff at the San Francisco Federal Reserve, where she was president from 2004-2010, that there are real people behind labor market statistics and economists need to worry about their wellbeing.

“I think I said, ‘They’re f***people,’” Yellen said. “I wanted people that worked for me to take seriously the harm and misery that was being experienced by all too many Americans.”

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