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BlackRock: Inflation Set for Rollercoaster Ride in 2024 as Economy Grapples With COVID Spending Shift and Aging Workforce

  • Inflation is set to fluctuate in 2024 as the economy contends with two major changes, per BlackRock.

  • The shift from services to goods spending during COVID created supply/demand mismatch, fueling inflation.

  • An aging workforce is shrinking labor supply, stoking wage growth and inflation.

  • Inflation should dip soon as mismatch resolves, but will rebound as labor shortages worsen.

  • Higher rates from the Fed will likely persist to contain inflation, risking recession.

businessinsider.com
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Main Topic: The current state of inflation and its impact on prices Key Points: 1. Price increases have started to decrease from the highs experienced during the pandemic. 2. Some goods and services have steadily increased in price over the course of the pandemic. 3. The U.S. is unlikely to return to pre-pandemic price levels in the near future.
### Summary Former Toys "R" Us CEO Gerald Storch warned that the economy is likely to face a difficult holiday season due to persistent inflation. Other economic stresses such as rising interest rates, credit card debt, and student loans are also contributing to consumer difficulties. ### Facts - Inflation remains sticky despite the Inflation Reduction Act that was passed a year ago. - Sales of physical products have been declining for 11 consecutive months when adjusted for inflation. - The July consumer price index (CPI) rose 0.2%, with prices climbing 3.2% from the same time last year. - Pulte Capital CEO Bill Pulte suggests that the economy is in a period of stagflation with low growth and high inflation. - Shelter costs, accounting for 40% of the core inflation increase, rose 0.4% for the month and are up 7.7% over the past year. - Americans are spending $709 more per month on everyday goods and services compared to two years ago. - Consumers are shifting towards value retailers in response to inflation. - President Biden acknowledges that the Inflation Reduction Act was not solely aimed at reducing inflation but rather focused on generating economic growth.
### Summary Reserve Bank Assistant Governor Karen Silk says the Official Cash Rate is working despite sticky core inflation and record high employment. ### Facts - 📈 Headline inflation has been falling for the past year, but non-tradable inflation has not declined significantly. - 📉 Core inflation has been stuck at 5.8% for the past three quarters. - 🏠 The average mortgage rate is steadily climbing towards 6%. - 📊 There are signs that the OCR is working to restore balance in the economy, such as falling forward orders for business and decreasing durable spending. - 💰 Demand for residential mortgages has fallen 32.9% in the six months ended March. - 📈 The Reserve Bank expects non-tradable inflation to be lower in the coming quarter on an annual basis, but the quarterly rate may still be high. - ⛽ Higher petrol prices could lead to tradable inflation having its hottest quarter in two decades. - 🎯 The OCR mostly targets domestic, or non-tradable, inflation. - 🎯 The Reserve Bank's forecasts have been criticized for missing its inflation forecast, but Silk defends the forecasts, stating that they are as accurate as any other local economic institution. - 📆 The Reserve Bank has forecasted that headline inflation will be back in the target range one year from now. - 🤔 There is doubt about whether inflation will drop below 3% in September 2024, as predicted. - 💲 Another rate hike may be required to achieve the Reserve Bank's inflation target. - 💱 Some economists believe that the economic downturn could be worse than expected, making a rate hike unlikely in the near future.
U.S. economic growth may be accelerating in the second half of 2023, defying earlier recession forecasts and leading to a repricing of long-term inflation and interest rate assumptions.
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.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
The number of job vacancies in the US dropped in July, indicating a cooling labor market that could alleviate inflation, while fewer Americans quit their jobs and consumer confidence in the economy decreased, potentially impacting consumer spending; these trends may lead the Federal Reserve to delay a rate hike in September.
High energy prices and strong economic growth could lead to a rebound in inflation, with prices likely hovering around 5%, according to a former White House economist.
British finance minister Jeremy Hunt has stated that inflation is expected to halve by the end of 2023, with the goal of easing pressure on household budgets and increasing productivity, as the government aims to boost optimism about the economy ahead of the expected elections next year.
The gap between wage growth and inflation is closing, with projections indicating that it may fully close by the fourth quarter of 2024, providing workers with the opportunity to recover from the recent surge in prices; however, wage gains across different industries vary significantly, with sectors like accommodation and food services, leisure and hospitality, and retail experiencing higher wage increases compared to education, finance, construction, and manufacturing.
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.
Financial markets are preparing for a rebound in U.S. inflation in August, driven by higher energy prices, which could disrupt expectations of easy inflation control by the Federal Reserve.
The article discusses how the rate of inflation has impacted processors, distributors, and other middlemen, with some benefiting from price increases but now at risk of a slowdown.
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.
The Consumer Price Index is expected to show an increase in inflation in August, with headline inflation rising to 3.6% and core inflation easing to 4.4%, but the market is accustomed to this trend and the Federal Reserve is unlikely to change its rates at the upcoming meeting.
Inflation in the US is expected to accelerate again, with economists predicting a monthly rise of 3.6%, suggesting that price pressures within the economy remain a challenge in taming high inflation.
Bitcoin and other cryptocurrencies experienced fluctuations following the release of U.S. inflation data, signaling a potential impact of higher interest rates on digital currencies.
The labor markets are expected to pause on rate changes as the economy slows down, with growth in employment and capital expenditure decreasing and downside risks increasing, such as higher interest payments for the government and a potential United Auto Workers strike. However, there is hope for a rebound in 2024 with a potential pause in rate cuts and moderating inflation.
Consumers' inflation expectations have reached the lowest level since March 2021, with expectations of a 3.1% rise in prices over the next year, according to new data from the University of Michigan, signaling a positive sentiment for the Federal Reserve's fight against inflation.
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.
The Federal Reserve faces the challenge of bringing down inflation to its target of 2 percent, with differing opinions on whether they will continue to raise interest rates or pause due to weakening economic indicators such as drops in mortgage rates and auto sales.
Despite assurances from policymakers and economists, inflation in the US continues to rise, posing significant challenges to the economy and financial stability.
The era of infrequent recessions may be coming to an end, as economists predict that boom-and-bust cycles will become the norm again due to growing national debts and inflationary pressures.
The Federal Reserve will continue raising interest rates until inflation decreases, even if it means more people losing their jobs, according to CNBC's Jim Cramer.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
The retail, leisure and hospitality, and accommodation and food services industries experienced wage growth that outpaced inflation due to the high demand and staffing shortages after the pandemic, but there are no guaranteed inflation-proof industries, and it is important for individuals to focus on securing jobs that offer upward mobility and higher income to keep up with inflation.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
The Federal Reserve's concern over inflation and its potential impact on the economy is being compared to the inflationary period of the 1970s, but there are significant differences in the economic landscape today, including a higher debt burden and a shift from manufacturing to services as the primary driver of economic activity. As a result, a repeat of the high inflation and interest rates of the 1970s is unlikely, and the bigger worry should be the potential for a financial crisis in a debt-dependent financial system.
High inflation continues to pose challenges for central banks in Europe as some opt to pause interest rate hikes after nearly two years, leading to speculation on how long rates will remain at current levels and how to balance slowing economies, persistent inflationary pressures, and the delayed impact of rate hikes.
Despite expectations of higher interest rates causing a spike in unemployment and a recession, the Federal Reserve's rate hikes have managed to slow inflation without dire consequences, thanks to factors such as replenished supplies, changes in the job market, and continued consumer and business spending.
Germany's economy is expected to contract in 2023 due to skyrocketing energy prices and political insecurity, but economists are hopeful for a rebound in 2024 as inflation eases and wages increase.
The Federal Reserve will continue to raise interest rates as inflation resurfaces, according to Wall Street investor Caitlin Long, with big corporations benefiting while other sectors of the US economy are already in recession.
Underlying US inflation is expected to rise, supporting the idea that interest rates will need to remain higher for a longer period of time, as indicated by central bankers.
The article discusses the fear of a wage-price spiral and warns that if inflation is allowed to linger, it could lead to a cycle of increasing wages and prices, resulting in high inflation and a severe recession, as seen in the late 1970s and early 1980s.
Americans expect high inflation to persist over the next few years, with a median estimate of a 3.7% inflation rate one year from now, indicating that sticky inflation may continue, according to a survey by the Federal Reserve Bank of New York.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
The report on consumer prices in September shows that inflation remains steady but still poses challenges, leading economists to predict that the Federal Reserve will keep the possibility of a final interest rate increase this year open.
Despite recent market reactions and commentary, the inflation rate is expected to reach a 2% handle by the end of the year due to declining shelter costs and the exclusion of food and energy prices.
Inflation has remained high, with the latest figures showing a rate of 3.7%, and more rate hikes may be on the horizon as the Fed aims to bring inflation down to around 2% in the short term.
The Federal Reserve is expected to reach its 2% inflation target rate by early 2025 and is unlikely to raise interest rates in the near future, according to Mike Fratantoni, Chief Economist of the Mortgage Bankers Association. Fratantoni also predicts that the 10-year treasury rate will drop below 4% by the end of the year, leading to a decrease in mortgage rates over the next two years. The U.S. government's fiscal policy and debt limit impasse could continue to impact mortgage rates.
The resilient US consumer and strong job market are boosting consumer spending, which could lead to more Fed rate hikes and upside risks to inflation entering the fourth quarter of 2023.
The strong performance of the US consumer, with retail sales rising 0.7% in September, could lead to more Federal Reserve rate hikes and upside risks to inflation entering the fourth quarter of 2023.
U.S. inflation slowdown is a trend, not a temporary blip, according to Chicago Federal Reserve President Austan Goolsbee, who believes the downward trend will continue and hopes that it does, while also expressing concern over rising oil prices and possible economic disruptions in the Middle East; Mortgage Bankers Association Chief Economist Mike Fratantoni suggests the Fed is likely done with interest rate hikes and may reach its 2% inflation target by early 2025, with a low probability of rate hikes in November or December; Philadelphia Fed Reserve President Patrick Harker believes interest rates can remain untouched if economic conditions continue on their current path, as disinflation is taking shape and the Fed's interest rate policy is filtering into the economy; Mortgage rates have been affected by the federal government's increasing spending and smaller revenues, leading to a heavier impact on mortgage rates this fall.
The US economy experienced strong growth in the third quarter of 2023, fueled by consumer spending, but there are warning signs of a possible recession due to the impact of rate hikes on auto loans, credit cards, and student debt, as well as higher borrowing costs and the potential for deeper recession if the Federal Reserve continues to raise interest rates.