Rise in Consumer Prices Slowed to 7.7% Underlying price increases excluding energy and food slowed from a four-decade high
The Labor Department on Thursday said that its consumer-price index increased 7.7% in October from the same month a year ago, down from 8.2% in September and June’s 9.1% rate, which was the highest in four decades.
The so-called core CPI—which excludes volatile energy and food prices—climbed 6.3% in October from a year earlier, down from 6.6% in September, which was the biggest increase since August 1982. (…)
Investors are hoping that easing inflation means the Fed might not have to raise interest rates as high as previously feared. (…)
“This morning’s CPI data were a welcome relief, but there is still a long way to go,” said Dallas Fed President Lorie Logan in a speech Thursday in Houston. (…)
Thursday’s report offered investors a glimmer of hope that rates wouldn’t have to rise significantly above 5%.
On a monthly basis, the CPI rose 0.4% in October from September, the same pace as the previous month. The CPI measures what consumers pay for goods and services.
Core CPI rose 0.3% in October, down sharply from 0.6% in both September and August. (…)
“Early on, goods prices were driving that increase, but more recently it’s services prices, and that likely reflects the very tight labor market,” said Brett Ryan, senior economist at Deutsche Bank. (…)
- “The October CPI report renews some hope that a soft-ish landing might be achievable,” Evercore ISI’s Krishna Guha wrote in a note. (Axios)
(Some key numbers:
- Core Goods (27% of Core CPI) declined 0.4%, to be expected and to be continued given lesser demand, high inventories and easing supply chains. They are up 5.1% YoY. Goods producers and retailers are now in deflation.
- Core Services (73%) rose 0.5% after +0.6% and +0.8% in August and September respectively. That’s 7.7% annualized and largely reflects shelter costs and rising wages.
- Medical care services (12% of Core Services) “suddenly” declined 0.6%. Health Insurance dropped a very large 4.0% MoM (+20.6% YoY). This is because of a statistical quirk in the CPI methodology which bases the price of health insurance mainly on health-insurer profits, which are reported with a lag of about 10 months. Thus, data in the October 2022 CPI reflect what happened in 2021. Note that this only affects the CPI. The PCE, the Fed’s preferred inflation gauge “draws from the producer-price index, said Oscar Munoz, macro strategist at TD Securities, which includes expenditures by governments, such as through Medicare and Medicaid. Moreover, health services have a much bigger weight in the PCE price index than in CPI. The healthcare category of the PCE price index rose about 2.5% in August from the same month in 2021.” (WSJ)
- The lagged nature of the CPI’s health-insurance index means that it may not reflect current underlying price pressures in medical-care services. Those are likely building, thanks largely to labor costs. Medicare’s recently negotiated 4.3% reimbursement rate for inpatient hospital services for fiscal 2023 was the biggest increase in around 15 years. A large share of how Medicare calculates those rates is based on employment cost index data for hospital wages, said Mr. Sharif. That measure rose at an annual rate of 5.6% in the second quarter, up from 2.3% in the last quarter of 2020. The increase is likely to spill over into negotiations now under way between private insurers and hospital groups, he said. “It feels like we’re likely to see higher medical services inflation in 2023 than we have in the last few years,” said Mr. Sharif. “The magnitude of how much higher it is, we just don’t know yet—and that is going to determine how much of the health insurance drag is going to get offset.” (WSJ) So much for data dependency!
- Energy prices rebounded by 1.8% MoM after 3 months of declines and are +17.6% YoY. Food prices rose another 0.6% (+11% YoY). My “CPI-Essentials” series is up 0.84% MoM (+9.0% YoY) in October, substantially higher than disposable income growth (+3.2%). No “soft-ish landing” yet for consumers.
- United Airlines Advances 5% Pay Raise for Pilots United will accelerate an increase promised during the pandemic; pilots last week voted to reject a tentative contract.
(…) The move comes at a time when relations between United and its pilots have frayed. United’s pilots last week voted by a big margin to reject a tentative deal that would have included raises of more than 14.5% over 18 months. (…)
FYI, the next FOMC meeting is Dec. 14. The next CPI report is Dec. 13.
Bank of Canada Open to ‘More Normal’ Rate Hikes Amid Softer Data “We indicated that we expect interest rates do have further to go,” Macklem told reporters, “and I think that could be another bigger-than-normal step or it could be reverting to more normal 25-basis-point steps, we’ll see.”
(…) In a speech before the press conference, Macklem said Canada’s unsustainably tight labor market needs to soften in order to rein in soaring inflation with the economy still in excess demand. He reiterated that the central bank is working to balance the risks of over- versus under-tightening financial conditions.
“We need to rebalance the labor market,” Macklem said. “This will be a difficult adjustment. We want to do this in the best way possible for Canadian workers and businesses.”
Speaking to the Public Policy Forum, Macklem flagged elevated job vacancies and broadening wage growth as evidence of the labor market overheating. He said, however, that wage pressures “now look to be plateauing” and that the central bank is seeing “initial signs” of employment pulling back from unsustainable levels. (…)
Macklem said in his speech that while increasing labor supply is valuable, it’s “not a substitute for using monetary policy to moderate demand and bring demand and supply into balance.” (…)
China Eases Some Covid-19 Rules Even as Cases Pass 10,000 China eased pandemic controls, as the country’s leaders seek to lessen the pain of a stringent zero-Covid policy that has exacted a heavy economic toll and stoked rising public resentment.
The newly appointed Politburo Standing Committee of the nation’s top leaders, in one of its first major decisions, set out new rules to “optimize and adjust” the policy to minimize its impact on economic growth and people’s lives, as well as further open the country’s borders to foreign visitors, according to a release Friday by the National Health Commission.
Temporary bans on routes operated by airlines found to have brought passengers infected with Covid-19 into the country have been dropped, the health agency said. Travelers from other countries must now quarantine for eight days—five in a hotel or government center and three days of home health monitoring—down from a total of 10 days, it said. Passengers will also have to take only one test before boarding a flight.
At home, the scope of close contacts subject to isolation and mass testing has also been narrowed, a move that may alleviate one of the biggest sources of resentment among the many millions of residents who have been subject to stay at home orders simply for being in proximity to someone who had been close to a positive case. Quarantine for close contacts was cut to eight days from 10.
The designation of areas at risk—the basis for restrictions on people’s movements—has also changed, the health commission said, with high-risk areas limited to residential blocks rather than entire districts. (…)
The controls were eased even as China confronted its worst outbreak in more than six months, with infections spread across the entire country—many of them “considerable” in scale, in the words of the Politburo Standing Committee. New cases topped 10,000 on Thursday, a number not seen since Shanghai was placed under stringent lockdown for two months from the end of March.
It wasn’t immediately clear how the changes would affect continuing efforts to curb the spread of the coronavirus, and whether those facing lockdown in some parts of the country could expect restrictions to ease. About four million people were told to stay home in parts of Guangzhou, the southern economic hub, as authorities tightened controls to halt a growing outbreak this week. (…)
The easing of restrictions on Friday have raised expectations that China could further loosen its zero-Covid policy in the coming months. “We are now more convinced that a meaningful reopening will likely take place after the National People’s Congress next March,” Citigroup analysts said in a note. (…)
At the Politburo Standing Committee meeting on Thursday, Mr. Xi said that more effort needed to be placed on developing vaccines and inoculating vulnerable populations.
China has attempted to soften its Covid policies before, only to implement harsher measures as case numbers grew. Before Shanghai was locked down for nearly two months this spring, officials said they didn’t need to implement such sweeping restrictions.
U.K. Economy Shrank in Third Quarter, Sliding Toward Recession High energy costs, rising interest rates and a labor shortage weighed on British output in the three months through September.
COSTLY COINS!!!
JPM
Scratch my back… Bankman-Fried invested in venture capital backers of his FTX exchange
Presidents Biden and Xi will meet in Bali Monday, where they’ll discuss a variety of topics, including the war in Ukraine.
Amazon Unveils Smaller Delivery Drone That Can Fly in Rain The new drone will go into service in 2024. It has a longer range, can fly in a wider range of temperatures and has new safety features.
- Amazon’s New Warehouse Robot Could One Day Replace Humans “It’s a major leap in technology challenge, and technology development.”
Amazon.com Inc. has developed a robot capable of identifying and handling individual items, a milestone in the e-commerce giant’s efforts to reduce its reliance on the human order pickers who currently play a key role in getting products from warehouse shelves to customers’ doorsteps.
The robotic arm, tipped by a set of retractable suction devices, is called Sparrow. In demonstrations on Thursday, the machine autonomously grabbed items of different sizes and textures from a plastic tote and placed them in other receptacles. Amazon said the bot is capable of handling millions of different products. (…)
It wasn’t immediately clear how quickly or widely Sparrow would be deployed. (…)