Main Topic: U.S. inflation and the Federal Reserve's efforts to control it.
Key Points:
1. U.S. inflation has declined for 12 straight months, but consumer prices increased 3% year-on-year in June.
2. The Federal Reserve aims to reduce inflation to about 2% and plans to raise its key federal funds rate to over 5%.
3. The Fed is concerned about high inflation due to a strong labor market, rising wages, and increased consumer spending, and aims to slow the job market to control inflation.
Inflation is causing a decline in affordability for average working individuals, with prices on everyday necessities such as groceries, gasoline, and housing rising significantly in the past two years due to government spending and the Fed's money-printing.
Crude oil prices rise as US inventories decline and concerns about US rate hikes and China's economic indicators persist.
Despite signs of declining U.S. inflation, a majority of Americans, particularly those living in rural areas, are experiencing higher grocery prices under President Biden's economic policy, known as Bidenomics. Concerns about inflation and reliance on partisan news contribute to the perception of economic challenges, despite reports of a strong U.S. economy.
Rising gasoline prices are impacting inflation-weary Americans.
Oil prices jumped over 2.5% after OPEC+ members extended supply reductions, with Brent International topping $90 per barrel and West Texas Intermediate hovering above $87 per barrel, as Saudi Arabia announced an extension of its production cut and Russia reduced its exports. Despite slow recovery and increased production, crude futures have rallied more than 25% since late June, with experts predicting prices to continue rising unless a recession occurs. China's demand for petrochemicals has been dampened, but their mobility demand post-lockdowns has offset this.
The rebounding crude oil prices and fading annual base effects suggest that energy prices may become a headwind for global markets, potentially complicating the battle against inflation and tightening monetary policies.
Rising WTI crude oil prices are raising concerns about higher inflation, which the Federal Reserve is trying to avoid, according to Moody's Analytics Chief Economist Mark Zandi.
Summary: Rising oil prices and increasing gas prices, driven by the Russian-Saudi agreement to extend oil production cuts, are contributing to inflation concerns and putting pressure on the markets, leading to potential gains for oil stocks like ConocoPhillips and Chevron.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
US inflation has slowed over the past year and wages are not a reliable indicator of future price increases, according to Federal Reserve officials.
Rising oil prices are making it harder for the Federal Reserve to achieve its 2% inflation target, as increased energy costs could lead to higher prices for goods and services, potentially complicating the Fed's plan to hold interest rates steady and achieve a "soft landing" for the economy.
The Biden administration may artificially depress inflation by using taxpayer money to manipulate the global oil market and replenish the Strategic Petroleum Reserve, in an attempt to lower gas prices and improve the president's chances of re-election.
Americans are expecting high inflation to persist over the next few years, with a median expectation of 3.6% one year from now and estimates of around 3% three years from now, according to a survey by the Federal Reserve Bank of New York. This suggests that sticky inflation may continue to be a concern, as it surpasses the Fed's 2% target. Consumers also anticipate price increases in necessities such as rent, gasoline, medical costs, and food, as well as college tuition and home prices.
Investors and the Federal Reserve will have to wait for inflation to return to acceptable levels, as the Consumer Price Index report for August 2023 shows consumer prices rising at half the pace compared to a year ago, despite a jump in gas prices.
Gasoline prices contributed to a rise in inflation in August, but economists believe that the increase is temporary and that overall inflation is headed towards normal levels.
Despite a spike in gas prices, the rise in inflation appears to be easing gradually, with core prices exhibiting a slower increase in August compared to July, suggesting that price pressures are being brought under control.
Producers are facing a sharp increase in prices, indicating that inflation pressures will not ease anytime soon.
Despite rising gas prices, Americans remain optimistic about inflation easing, as expectations for inflation rates in the year ahead have fallen to the lowest level since March 2021, according to a consumer sentiment survey from the University of Michigan. However, concerns are surfacing about a potential government shutdown, which could dampen consumer views on the economy.
US inflation is expected to continue its slowdown in the coming months due to easing car prices, declining rents, and a potential slowdown in the job market.
Oil prices continue to rise as OPEC+ supply cuts tighten the market, with Brent crude surpassing $94 a barrel and speculators increasing bullish wagers on Brent and West Texas Intermediate, leading to concerns about inflationary pressures.
Gasoline prices are rising due to oil supply cuts in Saudi Arabia and Russia, as well as flooding in Libya, but some experts believe that increasing oil prices will not have a significant impact on the US economy and do not expect them to rise much higher in the next year or two due to factors such as increased US oil production, slow global economic growth, and the green energy transition. However, high oil prices can lead to higher inflation, potential recession, and could influence the Federal Reserve to raise interest rates, but the impact may not be as severe as in the past, and some experts recommend investing in the energy transition and adopting a more defensive investment strategy.
Crude oil prices, inflation expectations, and labor strikes in the auto industry are among the key factors affecting global markets this week, as central banks grapple with mixed signals and low visibility.
Canada's inflation rate rose to 4.0% in August, driven by higher gasoline prices, while the Trans Mountain oil pipeline expansion is expected to disrupt oil flow to the US, potentially increasing prices, according to Statistics Canada. US Treasury Secretary Janet Yellen believes the US economy can withstand near-term risks such as strikes, government shutdowns, student loan payments, and spillovers from China's economic woes, stating evidence of a healthy labor market and consumer spending. Rent is rising faster in Brampton than in any other Canadian city, leading to financial difficulties for renters.
World markets are cautious ahead of central bank decisions and concerned about inflation signals amidst rising oil prices, as crude oil reaches its highest levels of the year due to supply cuts from Saudi Arabia and Russia, while US production also falls.
Rising crude oil prices, driven by supply concerns and output cuts, threaten to push up petrol prices and hinder efforts to tame inflation, putting pressure on central bankers.
Crude oil prices rose as inventories declined and demand from Asia and Europe decreased, threatening higher gas prices in the US and potentially impacting the Federal Reserve's interest rate decisions.
The recent global supply concerns caused by Russia's fuel export ban are driving up oil prices, counteracting the demand fears driven by macroeconomic headwinds and high interest rates.
Gas prices in the US have slightly decreased due to the switch to less expensive winter blend gasoline, but the decline is being slowed by higher oil costs, with the potential for prices to spike as oil prices surge. The Federal Reserve is pausing interest rate hikes as inflation, driven by a surge in oil prices, increases, but future rate hikes could impact consumer debt, including car insurance. Some states saw significant shifts in gas prices, with Nevada experiencing the largest increase and California having the highest gas prices in the nation. Shopping for cheaper auto insurance can help lower car ownership costs.
Despite predictions of higher unemployment and dire consequences, the Federal Reserve's rate hikes have succeeded in substantially slowing inflation without causing significant harm to the job market and economy.
A spike in crude oil prices to the highest level of the year adds to the challenges faced by world markets, leaving investors turning to the Federal Reserve chair for reassurance amidst concerns over inflation, a potential government shutdown, unresolved autoworker strikes, and the Chinese property sector bust.
Investors are growing concerned about the possibility of stagflation as oil prices rise and inflation remains stubbornly high, with some predicting a recession is on the horizon. The recent surge in oil prices has amplified the risk of stagflation, characterized by slow growth, high unemployment, and soaring inflation. While unemployment rates are relatively low, fears are growing that mounting layoffs could change this. Analysts warn that the surge in oil prices will likely keep inflation higher and negatively impact economic growth. The global economy's escape from stagflation is now being reconsidered.
Higher gas prices boosted an inflation gauge closely tracked by the Federal Reserve in August, but measures of underlying inflation slowed, suggesting that overall price pressures are still moderating, potentially leading the Fed to leave interest rates unchanged at its next meeting.
The sharp decline in inflation in Europe in September raises hopes for relief from high consumer costs, but concerns remain regarding higher oil prices and the ECB's ability to achieve its 2% inflation target.
China's decreased oil demand, coupled with its shift from crude imports to refined product exports and sizable oil inventories, is countering recent crude price surges and playing a significant role in the global oil market.
U.S. gasoline prices are expected to decrease and may reach $3 per gallon due to a drop in crude oil futures, potentially benefiting consumers and cooling inflation but also indicating economic weakness with low gasoline demand.
Inflation is causing consumers to find certain expenses, such as fast food, streaming services, childcare, concerts, brisket, lattes, going out drinking, new cars, and health insurance, no longer worth the high costs.
The rapid decline of US inflation may not last due to potential upside risks in categories like used cars and airfares, raising concerns about whether price pressures in services components such as housing can slow down enough to sustain the downward trend.
The Canadian Dollar is easing off pressure as Crude Oil prices soften and US data dominates the market, with inflation figures expected to determine chart direction for the rest of the week.
Inflation is slowing nationwide, and the Minneapolis-St. Paul region is experiencing lower price increases than the rest of the country, though it may take some time for consumers to feel the benefits.
Despite a slight improvement in month-to-month price gains, inflation remains a challenge for the Federal Reserve as prices continue to rise, particularly in areas such as housing and gas, burdening families and straining budgets. The Fed's efforts to control rising costs for gas, groceries, and rent are limited, leaving policymakers searching for effective solutions.
Despite the variations in absolute levels of inflation between the two periods, current U.S. inflation is following a similar path as it did between 1966 and 1982, with the possibility of near-term and long-term risks impacting its trajectory, including escalating Middle East developments and the potential for oil prices to rise significantly.
