What To Look For In The November 2023 CPI Inflation Release
This measure offers a more stable reading on inflation because it strips out food and energy prices from the calculation. Prices of these goods tend to see sizable and unpredictable changes month to month that have little to do with consumer demand. The Fed’s next meeting is on September 19-20, so they will have an additional CPI reading from September 13 to feed into their interest rate decision. The Fed’s concern is that even though inflation is falling, services inflation remains high, fueled by rising wages.
As we said, the Consumer Price Index is the most common gauge of inflation. It shows to the government, businesses, and citizens how prices have changed in the economy over some period. Based on CPI, retailers predict future price increases, employers calculate salaries and the government defines cost-of-living increases. In such a scenario, trimming the Cash Rate seems out of the table at the time. If anything, inflation-related figures need to decline much more than anticipated throughout the next few months to allow policymakers a rate-cut discussion.
The U.S. Bureau of Labor Statistics (BLS) releases a monthly CPI report that includes statistics about how the prices of different goods and services change over the last month and the last 12-month period. Therefore, the next two CPI readings are likely to inform the path for interest rates. If CPI comes in much lower than expected, then maybe the Fed will forgo another 2023 interest rate hike.
They have also been among the most stubborn holdouts in the battle to bring down inflation. Mr. Biden also continued his recent calls for corporate America to reduce prices. “Now that our actions have helped rebuild supply chains and brought down input costs, I’m calling on large corporations to pass along the savings to consumers,” he said. Torres points to shelter prices continuing to slow as evidence that future deceleration is likely in services inflation.
- Energy analysts had feared that such cuts would keep fuel prices high, but robust production in other countries — as well as weakened demand for oil — have beat back potential price spikes.
- Prices for fruits and vegetables increased 0.3 percent, while the cost of meat, poultry and fish declined 0.4 percent.
- Egg prices picked up slightly again after they fell sharply earlier this year.
- Economists expect another key metric — the personal consumption expenditure deflator — could show core inflation slowing even below the Fed’s forecast of 3.5% by Dec. 31.
- Prescription drugs and gasoline also helped drive the December increase in spending.
The CPI attempts to measure the inflation felt by consumers, but the gross domestic product (GDP) deflator measures a wider range of inflationary effects. By accounting for the impact on institutions, such as governments, the GDP deflator makes year-to-year GDP comparisons more accurate. Everything costs more, so manufacturers produce less and may be forced to lay off workers. These yield demands can increase interest rates, which then increases costs for businesses borrowing money to expand. The net effect is a decrease in earnings, which could depress the stock market. Investors demand higher yields on these investments to make up for the loss in value as a result.
For example, we have started to see some disinflation in shelter costs in 2023 so far. As a large component of CPI, lower housing costs may help drive inflation lower. “The market is looking at it as glass half full. Inflation is rolling over, and the Fed is almost done raising interest rates,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
What is the Consumer Price Index (CPI)?
Fed officials have repeatedly emphasized that they remain “data dependent,” meaning they will cater their policy decisions to economic conditions rather than follow a predetermined path for rates. The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket https://traderoom.info/ of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
The Fed’s Reaction
Economists surveyed by FactSet expect the index, which excludes more volatile food and energy costs, to rise by 3% year over year in December. The Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures index, should show continued progress on the central bank’s goal of 2% price growth when it’s released Friday. The CPI measures the rate of inflation, which is one of the greatest threats to a healthy economy.
The Worry With September’s CPI Report
Housing (called “shelter” by the BLS) is the highest weighted category within the CPI calculation. Shelter uses the concept of “owner’s equivalent of primary residence” (OER), which is how much homeowners would charge to rent their home unfurnished, without utilities. The BLS surveys homeowners in multiple urban areas every year to gather this information, replacing one-sixth of the data every year. Though the CPI is widely used as a tool to evaluate the overall health of the economy, it has limitations in what it reports and who it represents. Forecasts for the July CPI report show a continuation of last month’s trend, according to FactSet consensus estimates. Today, the average cost of a gallon of gas is $3.13, according to AAA.
Progress on disinflation comes even as the economy has expanded at a healthy clip, with real gross domestic product growing 3.3% in the fourth quarter. That growth was driven in large part by consumer spending that was bolstered by easing price pressures, a solid labor market, and resilient wage growth. The PCE price index’s year over year measure of overall inflation was contrary to December’s reading for the consumer importance of sdlc in software development price index, which showed the pace of gains in consumer prices accelerated slightly. Driven largely by housing prices, the CPI climbed 3.4% year over year last month, an acceleration from the 3.1% pace logged in November. Americans’ personal savings rate—the amount put aside as a percentage of disposable personal income—slipped again last month to 3.7% from the 4.1% rate logged in both November and October.
Fed officials are watching inflation figures closely as they try to determine their next steps. Policymakers have raised interest rates to a range of 5.25 to 5.5 percent, up from near zero as recently as March 2022. They are now debating whether a final quarter-point rate move is necessary. “We see further disinflation in the pipeline in 2024 from rebalancing in the auto, housing rental and labor markets,” economists at Goldman Sachs wrote in a research note this week. Outsourced Chief Investment Officer service to institutional investors. He has previously served as Chief Investment Officer at Moola and FutureAdvisor, both are consumer investment startups that were subsequently acquired by S&P 500 firms.
“It’s amazing how much reaction and overreaction there is for one single data point,” said Simona Mocuta, chief economist at State Street Global Advisors. “Clearly the CPI is very important. In this particular case, it does have fairly direct policy implications, which are about the size of the next Fed rate hike.” Market participants are currently pricing in for the Fed to make roughly five rate cuts in 2024, according to the CME FedWatch Tool. Bond market data shows a 64% chance of the first cut arriving in March. That probability has fallen slightly over the past week, in the wake of December’s strong employment report. Combined with the flat (0.0 percent) month-to-month figure in October, consumer prices have now risen just 0.1 percent over the past two months.
What is a basket of goods?
Wage growth has moderated in recent months, but it is still elevated compared to prepandemic levels. Alongside dialing down any likelihood that the Fed will surprise markets and still raise rates at its next meeting, in December, investors have also begun to bet on when the Fed will begin to lower interest rates. Tuesday’s report offered renewed evidence of progress on those critical fronts. A closely watched measure of housing costs moderated after unexpectedly ticking up in September. A measure of inflation in other services — which encompass everything from manicures to health care — also came down notably, to the slowest pace since late 2021 based on Bloomberg calculations. While Tuesday’s CPI report is likely to show that overall inflation drifted down further in November, an underlying measure that the Fed watches more closely likely ticked up again, economists say.
