Economic Pressures Mount as CPI Figures Surprise Experts | Episode 179 | 10-10-24

In the latest episode of Markets with Megan, the discussion centers around the surprising rise in inflation as revealed by September’s Consumer Price Index (CPI) data. Both headline and core inflation exceeded expectations, with core inflation hitting 3.3%, up from the projected 3.2%. Despite falling gasoline prices, the cost of services, food, and goods surged, with service inflation proving especially persistent at 4.7% year-over-year. This poses significant challenges for the Federal Reserve, which now faces tough decisions regarding monetary policy. Investors are also grappling with the consequences, as equity markets have experienced pressure and long-term yields have increased, signaling growing concern over inflationary pressures.

The episode also highlights the broader economic implications of rising inflation, including the modest 1.5% rise in real average hourly earnings, which contrasts sharply with the 4.7% increase in service costs. Consumers are feeling the strain, facing higher prices in essential areas like food, insurance, and medical care. As the Federal Reserve prepares for its next meeting, with more data on inflation and employment expected, it is important to stay informed.

Well, this economic data we get keeps putting the Fed in a very difficult situation. That's all we can say about the report we got this morning on September's Consumer Price Index. It is Thursday, october the 10th, and this morning we received the inflation reading that we've been looking for for the month of September, and this is prices at the consumer level. Unfortunately, both of these whether you look at the headline level, which includes food, energy, or you strip out food and energy both of these levels came in higher than they were expected. At the headline level, it matched the past two months reading at 0.2%, and then, when you exclude food and energy, it's matched the last month, which is basically sitting at a five-month high On a year-over-year basis. The core reading the one the Fed's going to be looking at that actually is now rising 3.3% versus the expectation of 3.2%, so the progress that we've made in inflation looks to be stalling a bit. Let's dig into a couple more of the details, both of these at the headline level and the core level. If you just look at the index level, both are sitting at a record high. That's not surprising because inflation continues to grow, albeit at a slower pace.

When you look in the different categories. Let's just take a look at what actually declined. It was gasoline. We saw a big drop in gasoline prices. When you look at services, though, services are back up, rising four-tenths on a month-over-month basis. So your year-over-year level there is 4.7%. This is not what the Fed wants to see. Some of the other areas that rose food, apparel, a lot of goods prices, furniture we saw this also. So we saw the first time that goods prices have increased now for two months since 2023. You also saw, on the service side, some of those things that are important, whether it's insurance. Prices went back up again on auto insurance, medical care, physician services. These are all rising and this is a problem for the Fed, because they've said service inflation is sticky, and we also got the reading on the real average hourly earnings and they're only rising 1.5%. So when you're looking at services, rising 4.7%, this is problematic and the Fed is going to be paying close attention to this.

What we've seen is the equity markets don't like this. Obviously. Equity markets are down today and we're seeing yields on the long end of the curve rising. This is because we're now getting more concern over the fact that inflation is not completely done and behind us. The other thing is, when you look at the Fed funds futures market, it is now still pricing in a 25 basis point rate cut at the November meeting. But remember, even in the past couple of days there was some probability of a 50 basis point rate cut. That's likely off the table and you even had some Fed officials on the record today saying they wouldn't mind if the Fed pauses in November to see how things progress.

We're going to wait and see. We got more inflation data tomorrow, so we'll be back with that. We'll get the inflation level at the producer prices and this is important as well because this gives us an idea of how companies can actually have the pricing power there what are they purchasing their goods for and we'll be back again. We said the Fed still has a couple more important inflation readings as well as another jobs report before that meeting. So we'll keep monitoring this data, but we will be back tomorrow with what we see on the producer level. That's all we have today. If you like this podcast, please subscribe, hit that alarm bell, share it with friends or colleagues and if you want any of our past podcasts, you can go to marketswithmegan fm. Thank you.