The Consumer Price Index (CPI) released today shows that average prices for goods went up 0.1 percent in November compared to October, and increased 7.1 percent on an annual basis, revealing a cooling down of inflationary expansion as expected by economists even as prices persist at decades-high levels.
The CPI, the most widely adopted inflation barometer, registered a monthly rise of 0.5 percent in food, while energy decreased -1.6 percent, according to data from the U.S. Bureau of Labor Statistics. The 12-month average touched a peak last June when it hit 9.1 percent, but has since steadily cooled following interest rate hikes by the Federal Reserve, and a general decrease in economic demand. Demand had surged after pandemic-related shutdowns were eased across the country and internationally.
Prices for new vehicles did not register any change from last month, but were up 7.2 percent when compared to 2021, whereas shelter costs went up 0.6 percent monthly and 7.1 percent yearly.
Electricity went down -0.2 percent in November compared to the prior month, while apparel increased 0.2 percent. Transportation services and medical care services’ costs edged down -0.1 percent and -0.7 percent, respectively.
Four of the six major grocery store food group indexes increased over the month, as fruits and vegetables went up 1.4 percent, after falling 0.9 percent in October. Cereal and bakery prices rose 1.1 percent, while dairy and related products increased 1.0 percent in November. Meats, poultry, fish, and eggs fell 0.2 percent over the month after going up 0.6 percent in October.
Markets Predicted to Rise
The markets are expected to see a rise with lowered inflation rates. JPMorgan analysts suggest a sharp rally, according to Bloomberg. The prediction is for the benchmark S&P 500 Index to surge by 4.0–5.0 percent if the November CPI figure registers 7.0–7.2 percent.“The logic here is that not only is inflation dissipating but its pace is accelerating,” Andrew Tyler, from the investment bank’s trading desk, wrote in a note, cited by Bloomberg. “This would give increasing confidence in projections of headline inflation falling ~3 percent in 2023. Further, if inflation is at 3 percent, irrespective of the labor market conditions, it seems unlikely that the Fed would hold the terminal rate at 5 percent. Any Fed pivot will rip equities.”
Tyler added that the CPI numbers carry the potential to determine market direction until Jauary’s earnings’ releases. “Equity positioning is less light, but remains historically low; investors seem to have a view that this report comes inline or slightly dovish.”
Fed Policies and American Income
The Federal Reserve is expected to reduce rate hikes to an increase of 50 basis points, according to a speech by Fed Chair Jerome Powell at the Brookings Institution on Nov. 30.“We think that slowing down at this point is a good way to balance the risks,” Powell said. “The time for moderating the pace of rate increases may come as soon as the December meeting,” which will occur on Dec. 13–14.
The federal funds target range is currently 3.75–4.0 percent, and economists estimate the central bank will keep raising rates until the target reaches 5.0 percent or more.
At the start of 2020, the 12-month average CPI was 2.5 percent. In January 2021, it was 1.4 percent. By January 2022, it had surged to 7.5 percent, and has consistently stayed over the level through the year, until now.
Since the surge in inflation, the average American family has lost $6,100 in real annual income, according to EJ Antoni, a research fellow in regional economics with The Heritage Foundation. Moreover, higher interest rates have further set them back by $1,300 per year.
Despite the cooling down of inflation, consumer prices for staple products are still considerably higher than a year ago, and many are still continuing to climb, dealing a blow to the daily finances of an American household.
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