Looking Under the Surface of the Latest Inflation Report

Jeffrey Roach (00:02):

What's going on under the surface with the economy and how will it affect businesses? Hi, and welcome to the latest edition of the LPL Econ Market Minute. So first, the large rise in shelter costs was the key factor in September's consumer inflation report. This surge was the main driver in headline inflation for the month, contributing more than half of the increase. Now, although shelter prices were significant this month, their impact is not anticipated to be as strong in the following months. Rent prices are off their peak according to industry reports, and investors should know that there's a sizable lag in time between a reported movement in industry rental data and the official government metrics. Core inflation excluding shelter was unchanged from the previous month and up only 1.9% from a year ago. So clearly the inflation experience on homeowners is quite different than the experience felt by renters.

Jeffrey Roach (01:06):

Looking ahead, investors should be carefully watching oil prices for insight for how the Fed will act in their December meeting. Second, the Fed was unanimous with, and I quote "proceeding carefully" as the balance of risks seem to be changing. Here are a few highlights from the latest Fed meeting minutes. Now, before we get to that, I want to say that obviously the events in the Middle East will likely change the committee's view on global risks, diminishing the likelihood of more interest rate hikes. But nonetheless, here are a few insights from the minutes. Volatility of the data, along with multiple data revisions, made the decision process difficult for the Fed at this last meeting. Hence, committee members were cautious about the balance of risks. Now, personally, I find it interesting that the word pause never made it into the minutes. The Fed is likely at the end of their rate hiking campaign as financial conditions tighten organically from the recent spike in bond yields. Since interest rate policy is now restrictive, the risks are more balanced and successfully restraining the economy. The bottom line is this, the Fed is near the end of their rate hiking campaign, and the events in the Middle East likely solidify this view. The risks of overt tightening appear to be in balance with the risk of insufficient tightening. Now, if you want more insights on global market trends, follow us on social media and take care.