Wholesale inflation records the largest monthly decline since the beginning of the Covid-19 pandemic | Economy

Wholesale inflation records the largest monthly decline since the beginning of the Covid-19 pandemic |  Economy

The Bureau of Labor Statistics reported Wednesday that wholesale inflation fell sharply in October to an annual rate of 1.3% driven mostly by a sharp decline in energy costs.

The monthly decline in the producer price index was the largest since April 2020, when the country was facing the shock of the Covid-19 pandemic. Prices rose 0.4% in September.

The office said in its statement: “More than 80% of the October decline in the final demand goods index is due to a 15.3% drop in gasoline prices.”

Excluding energy and food costs, the core index is now 2.9% year-on-year, slightly higher than its level in September. Analysts had expected a monthly decline of 0.1% and an annual rate of 1.9% for the general index.

It was the second reading in as many days that showed inflation falling close to the Fed’s annual target of 2%.

“More good news on the inflation front – PPI data came in generally lower than expected,” Cathy Jones, chief fixed income strategist at Schwab Center for Financial Research, posted on social media.

Political cartoons about inflation

Stocks rose on Tuesday after the Consumer Price Index posted a better-than-expected reading of 3.2% annual inflation rate last month. The basic index, excluding energy and food costs, was 4%. The Dow Jones Industrial Average rose 500 points as investors bet that the Federal Reserve was done raising interest rates.

“While the 12-month core CPI remains at 4%, the 12-month core CPI excluding shelter fell to 2%, above its average just before the pandemic,” BCA Research wrote in a Wednesday morning note to clients. “This means that shelter is the only thing keeping core inflation above target, and market rental trends point to a rapid slowdown in shelter inflation over the next six to 12 months.”

Adding to the positive inflation picture are gas prices, which are now averaging $3.35 per gallon nationally ahead of the Thanksgiving holiday. This is the lowest price since February.

The House of Representatives approved a plan to avoid a government shutdown, with more Democrats voting in favor than Republican Party members. Reports indicate that it is likely to pass the Senate.

John Sidonoff, a finance professor at Villanova University, says the Fed is “not done yet” in that the central bank is keeping the door open to the possibility of raising interest rates if the economy performs stronger than expected or if inflation fails to slow further.

“They may not raise interest rates again, but they reserve the right to do so,” he says.

In fact, last week, Federal Reserve Chairman Jerome Powell flatly told an audience at an event in Washington sponsored by the International Monetary Fund that officials are “not confident” they have beaten inflation.

But the market isn’t buying it. 10-year Treasury yields fell below 4.5% on Tuesday and futures markets expect the Fed to start cutting interest rates by the end of the first half of 2024.

Meanwhile, the Census Bureau reported Wednesday that retail sales fell 0.1% in October after rising 0.7% in September. Analysts had expected a decline of 0.3%. The 7.5% decline in gasoline sales compared to last year was a major contributor, as retail sales were not adjusted for inflation, and gas prices have also fallen recently. Non-store retailers, mostly online, saw a 7.6% increase in sales compared to last year.

The recent improvement in inflation and the continued resilience of the US economy has some Wall Street firms forecasting a positive outcome for 2024, while acknowledging the possibility of a slowdown or even a mild recession.

“The prospect of a ‘soft landing,’ where growth slows but avoids a complete contraction, is not insignificant,” Wells Fargo economists said in their economic forecasts released last week. “But even if the economy avoids recession, growth in 2024 is likely to be suboptimal, at best, due to the high level of real interest rates.”

Not everyone is so optimistic.

“I think we are seeing a sharp slowdown, and possibly zero growth, next year,” says Dan North, chief North America economist at Allianz Trade. “Consumers started to slow, personal income dropped for four months, and credit card use jumped.”

North says he recently spoke to a trucking industry gathering and heard dire comments about the state of the industry, which is critical to the overall economy since much of the freight shipped in the country is transported by truck.

“They were very clear about it: if things aren’t desperate, they’re very bad,” he says.

    (tags for translation)Tim Smart

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