That’s the fear spreading through Wall Street as another inflation reading on Friday 16th February 2024 came in hotter-than-expected.
The producer price index rose 0.3% in January 2024. The largest increase since August 2024 and higher than the 0.1% forecast. Excluding food and energy, core PPI jumped 0.5%, again well above consensus.
Stubborn
It is yet another sign of stubborn price pressures across the broader U.S. economy. And it came just days after an unexpectedly hot CPI reading, which gave markets a nasty jolt.
Both data have stoked investor worries on whether inflation is firmly under control. The latest developments also reinforce the Fed’s caution that it will need to see more evidence of disinflation before committing to lower rates.
Mohamed El-Erian, Allianz chief economic advisor, posted on X that like the CPI data, the PPI report was a further indication that the last mile of the inflation battle is more complex than many had assumed (and still assume).
Some economists even argue the jump in Friday’s data will likely push January’s personal consumption expenditures price index, the Fed’s preferred inflation gauge.
The PPI data means we can finalise our core PCE forecast for January, at 0.32%. That would be the biggest increase since September. But the three months since then all saw much smaller gains.
But investors will have to wait until later this month for PCE data when it’s released on 29th February 2024.
The UK’s inflation rate remained at 4% in January 2024, despite the first monthly fall in food prices in two years, ONS figures show.
January U.K. inflation held steady at 4% year-on-year benefitting from easing prices for furniture and household goods, food and non-alcoholic beverages.
According to the latest figures from the Office for National Statistics (ONS), prices for food and non-alcoholic beverages fell on a monthly basis by 0.4%, marking the first decrease since September 2021.
The core CPI figure excluding volatile food, energy, alcohol and tobacco prices annual reading was 5.1%, below the 5.2% estimate – but only a micro 0.1% difference.
The latest inflation data is a reflection of what is happening in the labour market: a tight labour supply is sustaining high wage growth and thus underlying inflationary pressure.
Stocks dropped on Tuesday 13th February 2024 after hotter-than-expected inflation data for January caused Treasury yields to spike
The new inflation figure raised doubts that the Federal Reserve would be able to cut rates several times this year, a key part of the equity market bull run case.
The consumer price index rose 0.3% in January 2024 from December 2023. CPI was up 3.1% year-to-year. Economists expected CPI to have increased by 0.2% month over month in January and 2.9% from a year earlier.
U.S. inflation ticks back up in January 2024 figures
In January 2024, inflation logged its biggest monthly jump since August with a 6.7% rise from December 2023.
Year-on-year inflation hit nearly 65%, according to the Turkish Central Bank’s figures released Monday 5th January 2024
The consumer price index (CPI) for the country of 85 million people increased by 64.86% annually, up slightly from the 64.77% of December.
Sectors with the largest monthly price rises were health at 17.7%, hotels, cafes and restaurants at 12%, and miscellaneous goods and services at just over 10%. Clothing and footwear were the only sectors showing a monthly price decrease, with -1.61%.
Food, beverages and tobacco, as well as transportation, all increased between roughly 5% and 7% month-on-month, while housing was up 7.4% since December 2024.
The Federal Open Market Committee (FOMC) held interest rates steady and indicated a willingness stop raising interest rates.
But a cut anytime soon is unlikely until inflation is brought fully under control and nearer to the Fed’s 2% inflation target.
The Federal Reserve sent a signal that it is finished with raising interest rates but made it clear that it is not ready to start cutting, just yet. It also said there are no plans yet to cut rates with inflation still running above the central bank’s target.
Federal Reserve interest targets and increases since 2022 to January 2024
Core prices for personal consumption expenditures (PCE), a preferred measure by the Federal Reserve as a longer-term inflation calculation, rose 2% for the period, while the rate was 1.7%.
On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.
Good news
Inflation falling, GDP rising, stabilizing interest rates and no recession thus far the U.S. economy is looking rock-solid despite all the negativity.
Turkey’s central bank on Thursday 25th January 2024 hiked its key interest rate to 45%.
It comes amid an ongoing struggle against double-digit inflation for Turkey’s policymakers, with the rate hike the latest step in that ongoing fight.
30 Turkish Lira to 1 U.S. dollar
Inflation in Turkey increased nearly 65% year-on-year in December 2023, up from 62% in November, and the country’s currency, the lira, hit a new record low against the U.S. dollar earlier in January 2024 at 30 Lira to $1.
Analysts predict this will be the last hike for some time, especially with local elections approaching in March 2024
Inflation, rose marginally to 4% in December, up from 3.9% in November 2023.
Economists had forecast a slight fall but unexpected rises in alcohol and tobacco prices were behind the surprise rise.
However, with energy bills predicted to come down in 2024, there are still expectations of interest rate cuts later this year.
On target still for 2%?
As we have seen in the Germany, the U.S., and France, inflation does not fall in a straight line, ‘but our plan is working and we should stick to it,‘ Jeremy Hunt reportedly said in a statement.
UK inflation from April 2019 to December 2023
UK inflation from April 2019 to December 2023
Unprepared for both the start and the end of the pandemic
Increases in the cost of energy and food costs, started by pandemic lockdowns ending exasperated further by Russia’s invasion of Ukraine and more recently the conflict in Israel have put household finances under extreme pressure.
The UK and other countries were woefully underprepared for all of these events as they ‘began’ and at the ‘end’. We did not prepare to come out of them – there was no exit plan!
Markets and traders are still expecting BoE to cut its base rate in 2024 due to the fast-falling inflation rate. It peaked at 11.1% in October 2022 – and now sits at 4%.
The question is: will the economic recovery be good enough to allow the Bank of England to start cutting rates?
The UK interest rate currently sits at 5.25%.
‘What’s inflation?’ ‘Dunno, but my beer’s gone up!’
Stocks moved lower Thursday 11th January 2024, reflecting the higher-than-expected December 2023 inflation data.
The S&P 500 in early trade edged lower by around 0.7%, while the Nasdaq Composite dropped nearly 0.8%. The Dow Jones Industrial Average dropped by 0.6%. The S&P 500 briefly touched 4800 after climbing above its record high of 4,796.
Higher than expected
December’s consumer price index figure came out slightly higher-than-expected, reflecting a 0.3% increase in consumer prices for the month, pushing the annual rate to 3.4%.
Core CPI, excluding volatile food and energy prices, came out in line with expectations, however, pointing to persistent, but easing inflation pressures. The new inflation data figures suggests that future interest rate cuts may be slower to come.
This move up in CPI is an absolute reminder of the unpredictable nature of economic recovery.
UK inflation fell by more than expected in November 2023, driven largely by a drop in fuel prices.
Inflation dropped to 3.9% in the year to November 2023, down from 4.6% in October 2023. Other than fuel, slowing food and household items were also behind the drop.
Inflation has fallen a long way from its peak in 2022, it is still almost double the Bank of England’s 2% target.
The Bank has put up interest rates 14 times since December 2021 to try to slow price rises, pushing up savings rates but also borrowing costs.
The Bank of England Interest rate is currently at 5.25%, a 15-year high.
Prices across a wide spectrum of goods and services moved slightly higher in November 2023 but were mostly in line with expectations, thus further easing pressure on the Federal Reserve.
The consumer price index, a closely watched inflation gauge, increased 0.1% in November, and was up 3.1% from a year ago, the U.S. Bureau of Labor Statistics reported Tuesday 12th December 2023.
While the monthly rate indicated a pickup from the flat CPI reading in October 2023, the annual rate showed another decline after hitting 3.2% a month earlier.
Annual inflation in the euro zone sank to 2.4% in November 2023 from 2.9% in October 2023, data showed Thursday 30th November 2023.
Core inflation was also below expectations at 3.6%.
The European Central Bank has stressed that it is too early to declare victory in the 20-member euro zone bloc, as they monitor potential pressures from wage increases and energy markets.
Headline inflation has now fallen significantly from the peak levels of 10.6% in October 2022.
The governor of the Bank of England, Andrew Bailey has raised concerns over economic growth as he warned again that interest rates will not be cut in the ‘foreseeable future’.
The bank boss said he was concerned over the UK economy’s potential to grow. It comes after the government’s forecaster cut its growth outlook for the UK, due to high inflation, interest rates, energy and food price increases which were exacerbated by the Covid pandemic and Russia’s invasion of Ukraine.
Inflation, which is the rate consumer prices rise at, has dropped sharply in recent months, falling to 4.6% in the year to October largely as a result of lower energy prices.
However, it is still more than double the Bank of England’s 2% target and Mr Bailey warned lowering inflation further would be ‘hard work’.
Interest rates are currently at 5.25%, a 15-year high, which has pushed up borrowing and mortgage costs.
Federal Reserve members, in their most recent meeting, gave little indication of cutting interest rates anytime soon, particularly as inflation remains well above their goal of 2%, according to minutes released Tuesday 21st November 2023.
The detail of the meeting held 31st October – 1st November 2023, showed that Federal Open Market Committee (FOMC) members are still concerned that inflation could be stubborn or move higher, and that more may need to be done.
They indicated that policy would need to stay ‘restrictive’ at the very least, inflation is on a convincing move back to the central bank’s 2% goal.
UK inflation fell to 4.6% in October 2023, down from 6.7% in September 2023.
This is the lowest rate of price increases since 2021 and the bigger than expected fall should provide some relief to UK households gripped by the cost-of-living crisis.
The main factors that contributed to the drop in inflation were largely due to lower energy prices, food and non-alcoholic drink prices, and airfares. Economists suggested that the main reason inflation fell from its peak of 11.1% in October 2022 was due to the fall in the energy price cap, which limits what suppliers can charge consumers per unit of energy.
However, the UK still has the highest inflation rate of any G7 country, and some economists warn that the Bank of England (BoE) may need to raise interest rates to prevent inflation from rising again.
Target hit
The UK government will no doubt rejoice today as the end-of-year 5% has been achieved earlier than expected. But don’t party too early, the actual target is 2%. There is a limit to how much credit ministers can take for the fall as energy prices settle.
The FTSE100 was happy, it climbed some 100 points in morning trade.
Pay growth has outstripped inflation by the most since 2021, in a further sign that the pressure on living costs may be starting to ease.
Regular pay rose at an annual rate of 7.7% between July and September 2023, official figures show; higher than average inflation over the same three months.
But job vacancies fell for the 16th month in row, in a worrying sign that the jobs market is weakening. Between August and October 2023, the estimated number of vacancies in the UK fell to 957000, down 58000 – although the Office for National Statistics (ONS) said the total remains well above pre-pandemic levels.
Data Source: Office for National Statistics Data
UK pay outstrips inflation by highest amount for two years
The UK’s unemployment rate was largely unchanged between July to September 2023 at 4.2%, according to ONS data.
The U.K. economy flatlined in the third quarter, initial figures showed Friday 10th November 2023.
Gross domestic product (GDP) showed zero quarterly growth in the three months to the end of September 2023, following an increase of 0.2% in the previous quarter. In annual terms, the UK’s Q3 GDP was 0.6% higher than in the same period in 2022.
Services sector output dropped 0.1% on the quarter, but the decline was offset by a 0.1% increase in construction performance, while the production sector flatlined.
U.K. Chancellor of the Exchequer Jeremy Hunt said high inflation remains the ‘single greatest barrier to economic growth’ in the country, with the consumer price index remaining at 6.7% year-on-year in September 2023.
UK economy flatlines as inflation sticks at 6.7% year-on-year as at September 2023.
‘The best way to sustainably grow our economy right now is to stick to our plan and knock inflation on its head’, Hunt reportedly said.
It’s useful to know the government have a plan, even though they were very late to the inflation party! Guess they were sidetracked with all the other parties at No.10!
‘The Autumn Statement will focus on how we get the economy growing healthily again by unlocking investment, getting people back into work and reforming our public services so we can deliver the growth our country needs’.
Up until September 2023, the Bank of England (BoE) raised interest rates 14 consecutive times to try to influence the UK ‘product and service’ price climb.
Red flags
Interest rates are now at a 15-year high of 5.25%, and are expected to remain high for some time to come. Bank Governor Andrew Bailey reportedly said last week it was ‘much too early’ to be considering rate cuts.
Thank you Governor Baily – it so comforting and reassuring to know that the very people who missed the red inflation flags are still in charge of policy.
Transitory?
Remember, the BoE and others originally suggested inflation would be transitory – I suppose it is, if given years to move back down. What did you think was going to happen after all that borrowing and the country crawling back to work after the pandemic.
Nice job guys! Don’t forget to collect your paycheque on the way out!
Fed Chair Jerome Powell reportedly said he and his colleagues remain steadfast in getting policy in line with their 2% inflation target, but ‘we are not confident that we have achieved such a stance’.
He stressed the Fed nevertheless can be cautious as the risks between doing too much and too little have come into closer balance.
Federal Reserve Chairman Jerome Powell reportedly said Thursday 9th November 2023 that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they’ve done enough to keep the momentum going.
Inflation battle
Speaking a little more than a week after the central bank voted to hold rates steady, Powell said in remarks aimed at the International Monetary Fund (IMF) gathering in Washington, D.C., that more work could be ahead in the battle against high prices.
The statement comes with inflation still well above the Fed’s long-standing goal but also considerably below its peak levels in the first half of 2022. After 11 U.S. rate hikes, we have witnessed the most aggressive policy tightening since the early 1980s, the FOMC have increased rates from pretty much zero to a range of 5.25%-5.5%.
Those increases have coincided with the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, to fall to an annual rate of 3.7%, from 5.3% in February 2022. The more widely followed consumer price index peaked above 9% in June of last year.
Progress
Powell referenced the progress the economy has made. Gross domestic product (GDP) accelerated at a ‘quite strong’ 4.9% annualised pace Q3 2023, though Powell also said the expectation is for growth to ‘moderate in coming quarters’. He described the economy as ‘just remarkable’ in 2023 in the face of a broad expectation that a recession was inevitable.
Nothing like a massive ‘self-pat’ on the back for a job well-done? Remember the Fed’s initial analysis? IT was for inflation to be ‘transitory’. They didn’t get that right either.
Futures pricing, according to the CME Group, suggested there’s less than a 10% chance that the FOMC will approve a final rate hike at its Dec. 12-13, 2023, meeting, even though committee members in September pencilled in an additional 0.25% rise before the end of 2023.
Impression drawing of Fed Chair. The Fed is ‘not confident’ according to Jerome Powell.
Traders anticipate the Fed will start cutting rates next year, probably around June 2024.
The Bank of England (BoE) announced its latest interest rate decision on Thursday, 2nd November 2023 to hold the bank rate at 5.25%.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted by a majority of 5-4 to maintain Bank Rate at 5.25%, the highest level in 15 years. However, four members preferred to increase the bank rate, to 5.5%.
The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next twelve months, to a total of £658 billion.
The BoE’s decision was influenced by the weak economic outlook, the high inflation rate, and the uncertainty surrounding the Covid-19 pandemic and the Brexit saga.
The BoE said that the UK economy was likely to contract by 0.5% in Q3 2023, and that underlying growth in the second half of 2023 was also likely to be weaker than expected. The BoE also warned that there was a 50% chance of a recession in the next year (50/50). I think even I could guess with odds at 50/50.
2% target inflation to be hit by Q2 2025
The BoE also said that inflation, which was 6.7% in September 2023, was expected to peak at around 7% in Q4 2023, before falling back to the 2% target by 2025 Q2. The BoE said that the inflation spike was largely driven by temporary factors, such as higher energy and food prices, and that it would not respond to it.
The Bank of England was behind the curve calling it transitory. Can we trust any future forecasts?
The BoE’s decision was in line with the market expectations, as most analysts and investors had predicted that the BoE would keep rates on hold.
The U.S. central bank has held its key interest rate at its current 22-year high as it seeks to stabilise price increases, which had recently reached near-record levels.
The Federal Reserve’s rate remains at 5.25%-5.5%.
The bank has been raising interest rates in an attempt to tame the economy and slow inflation, (the rate at which prices rise). Recent data showed the U.S. economy grew faster than expected.
Raising interest rates is a way for central banks tackle rising inflation. The idea is that by raising interest rates and making it more expensive to borrow, consumers will spend less and that would lead to slower price rises. In the U.S. however, the consumer is not slowing down. This may lead to higher rates, or higher for longer which in turn could push the U.S. into a recession.
The bank had faced criticism, with some suggesting that holding interest rates at higher levels could put the U.S. economy at risk of entering a recession.
House prices had the biggest monthly rise in October for more than a year, according to the Nationwide Building Society.
However, they were still down sharply on a year ago, the UK’s biggest building society noted. The rise in prices was most likely due to there not being enough properties to meet demand.
However, activity in the housing market is still extremely slow, as buyers struggle with higher mortgage rates.
Interest rates, which underpin mortgage pricing, have moderated recently but they are still well above the lows of 2021. The Bank of England has raised interest rates from lows of around 0.1% to 5.25% in its inflation battle.
According to the latest data from Eurostat, the statistical office of the European Union, the euro area annual inflation was 2.9% in October 2023, down from 4.3% in September 2023.
The main factor behind the decline in inflation was a sharp drop in energy prices, which fell by some 15% year-on-year in October 2023, compared to a 10.7% decrease in September.
The euro area economy also contracted by 0.1% in the third quarter of 2023, after growing by 0.6% in the second quarter, according to preliminary estimates from Eurostat. This puts the eurozone on the brink of recession, as high interest rates and weak demand weigh on the economic activity.
However, some analysts argue that the ECB’s monetary policy is too tight and risks choking off the recovery. They suggest that the ECB should adopt a more flexible approach and consider cutting rates or expanding its bond-buying programme if the economic outlook worsens.
Core inflation
Core inflation which excludes volatile food and energy prices dropped to 4.2% year-on-year in October 2023 from 4.5% in September 2023, according to European Union statistics agency Eurostat.
The agency also revealed Tuesday that the euro zone economy contracted by 0.1% in the third quarter, according to initial estimates, below consensus estimates for GDP to be unchanged from the previous quarter.
Predicition
The ECB expects the euro zone economy to grow by just 0.7% this year, by 1% in 2024 and 1.5% in 2025.
The inflation rate in Argentina is extremely high and has surpassed 100% for the first time since the early 1990’s. The inflation rate for consumer prices in Argentina was 138.28% in September 2023, based on the CPI values for the last 12 months.
This means that the prices of many goods and services have more than doubled since 2022. The main factors that contributed to this increase were the rise in food prices, especially meat, due to adverse weather conditions and a drought, as well as the economic difficulties and policy divisions that have plagued the country for years.
Argentina has been receiving bailout funds from the International Monetary Fund (IMF), but it has not been able to contain inflation, which has eroded the purchasing power of many people and pushed them into poverty.
The inflation rate in Argentina is one of the highest in the world and has a negative impact on its economic growth and social stability.
Map of Argentina
Map of Argentina
Argentina is the second largest country in South America, the fourth largest in the Americas, and the eighth largest in the world.
Central banks, 18 months ago got it fundamentally wrong and they got it wrong on many other occasions too.
So why take any notice?
The Fed and other central banks insisted that inflation would be ‘transitory’ – it wasn’t. It reached 7%. That’s 5% above the target of 2%.
Along with the misdiagnosis on prices, Fed officials, according to projections released in March 2022, collectively saw the key interest rate rising to just 2.8% by the end of 2023. It is now 5.25%.
The Great Depression (1929–1939) was an economic bomb that affected countries across the world. It was a period of severe economic depression after a major fall in stock prices in the United States. It began around September 1929 and led to the Wall Street stock market crash on 24th October 1929 (Black Thursday). See Wikipedia article here.
It was the longest, deepest, and most widespread depression of the 20th century.
The Great Depression of 1929
The Great Inflation
The Fed pursued an overly expansionary monetary policy in the 1960s and 1970s, which fueled high inflation and eroded the value of the dollar. The Fed also underestimated the impact of oil shocks and other supply shocks on inflation and was slow to tighten monetary policy to restore price stability. The Fed eventually raised interest rates sharply in the late 1970s and early 1980s, which triggered a severe recession. And in1991 inflation surged to 8.5%.
The Great Recession
The Fed likely contributed to the build-up of financial imbalances and excessive risk-taking in the 2000s, (Dotcom bubble) – by keeping interest rates too low for too long and by failing to adequately supervise and regulate the financial system.
The Fed likely contributed to the build-up of financial imbalances and excessive risk-taking in the 2000s
The Fed also reacted too slowly to the emerging signs of distress in the housing market and the financial sector and was unprepared for the global financial crisis that erupted in 2008. Remember, ‘sub-prime’ lending. We can see signs of similar stress in the U.S. car loan market now.
The Fed and other central banks including the Bank of England initially underestimated the severity and duration of the pandemic and its impact on the economy. The Fed also overestimated the transitory nature of inflation, which surged to a 30-year high in 2021 due to supply chain disruptions, pent-up demand, fiscal stimulus, and base effects. The Fed maintained an ultra-accommodative monetary policy stance for too long, despite mounting evidence of overheating and inflationary pressures.
The Fed finally raised interest rates by 0.75% in December 2022, but faced criticism for being behind the curve and for communicating poorly with the markets.
Transitory inflation
The Fed said inflation would be transitory in 2021 and 2022. The Fed used this term to describe the higher-than-normal prices that emerged during the Covid-19 economic crisis, which were expected to be temporary and not part of a long-term trend. The Fed attributed the inflation surge to factors such as supply chain bottlenecks, pent-up demand, fiscal stimulus, and base effects.
The Fed also said that it would let inflation run above its 2% target for some time, to achieve an average inflation rate of 2% over time. However, as inflation remained high and persistent in 2021 and 2022, the Fed faced criticism for being behind the curve and for communicating poorly with the markets. The Fed eventually raised interest rates.
And now, much of the same. The Fed is again ‘tinkering’ with policy to manage ‘transitory’ inflation and will most probably engineer a recession as a result.
It means prices are still rising at the same rate as the previous month.
Petrol and diesel costs kept inflation up, the Office for National Statistics (ONS) says, but food and non-alcoholic drink prices fell for the first time since September 2021.
Food inflation falls the most
Milk, cheese and eggs are among the products that went down the most; the price of household appliances and airfares fell to.
In response to the latest figures, Chancellor Jeremy Hunt said, ‘inflation rarely falls in a straight line’. He pledged to stick to the government’s promise to get the main rate of inflation down to 5% by the end of the year.
Thank you for that enlightening comment, Mr Hunt. May I remind you that even if you hit the target the government set of 5% by the end of the year; inflation will still be a whopping 3% above the Bank of England (BoE) original target!
Targets! Targets! Targets!
Thank you for that enlightening comment, Mr Hunt. May I remind you that even if you hit the target the government set of 5% by the end of the year; inflation will still be a whopping 3% above the Bank of England (BoE) original target!
Come on – get your act together! You really should have prepared batter and seen this coming.
Wholesale U.S. prices rose more than expected in September 2023, according to latest data released indicating that inflation remains a problem for the U.S. economy.
The producer price index(PPI), which measures costs for finished goods that producers pay, increased 0.5% for the month, higher than estimated for a 0.3% rise, the U.S. Labor Department reported Wednesday 11th October 2023.
Excluding food and energy, core PPI was up 0.3%, versus the forecast for 0.2%.
