In a world with a lot of gloom, I relish a day like today when the economy delivers some USDA-certified Grade-A Good News.
The big thing: Inflation cooled even more than expected in October — a sign that relief is on the way for consumers.
The Consumer Price Index, one of the primary ways economists track price movements, rose at an annualized rate of 3.2% in October. That's the lowest rate in two-and-a-half years, and down from 3.7% in September. (By annualized rate, we just mean it's measured over the 12 months from October '22 to October '23.) On a month-to-month basis, prices stayed the same.
Part of that decline can be chalked up to a drop in energy prices. Oil prices are on the verge of a bear market, down nearly 20% from September highs (more good news for consumers). If you take out volatile food and energy prices, core inflation was up 4% for the year — also better than analysts expected.
Some more positive tidbits:
- Shelter prices, which measure rental leases and the implicit rental value of owner-occupied properties, increased at 0.3% for the month, down considerably from the 0.6% spike in September.
- Annual food inflation was 3.3%, the lowest since June 2021.
Why it matters
The better-than-expected inflation reading signals to the Federal Reserve that its interest-rate hikes are working their way through the economy, taking it from a boil to a simmer.
The central bank's goal of 2% inflation, which felt miles away last year, is now in spitting distance. Wall Street loves that, because high interest rates eat into corporate profits, and investors are ready to get back an era of easy money (or, at least, easier money).
The Dow shot up about 500 points, or 1.5%. The S&P 500 and Nasdaq both had their best day since April.
There's more work to do...
As my colleague Alicia Wallace writes, there's some sobering side dishes accompanying the platter of good news.
"Inflation can be fast and slowing," said Michael Pugliese, a senior economist at Wells Fargo. "A car could be going 100 miles per hour and then go to 80. It's slowing down, but it's still going fast."
That means the Fed can't unfurl its Mission Accomplished banner yet.
In the meantime, Americans are living with the dual pressures of high prices and high interest rates. (See also: the housing market that's stuck in overdrive.)
Going about your daily life, you may not feel like inflation is getting better. That's because prices are not falling — they're just rising less quickly. And corporations have no incentive to lower prices now that we're all used to $7 coffees and $16 salads. (And by "we" I mostly mean fools like me who work in Manhattan.)
High prices are taking a toll, as Americans are piling up record credit card debt and, increasingly, falling behind on their payments. The broader risk there is that once the American consumer is tapped out, the whole US economic engine will sputter.
RELATED
Comments
Post a Comment