After getting major Central Bank announcements and the October NFP release out of the way last week, this week is relatively light on economic data and events. However, there is still some important data and the main focus will be on inflation data coming mid-week, with CPI data being released on Wednesday.
The expectation is that CPI rose 0.5% in October, which is higher than the 0.4% we saw in September. This means the annual rate would be at 5.8% in October, which is up from the 5.4% annual rate in September and would be the highest level since 1990.
However, if you take out the more volatile prices of energy and food, Core CPI is likely to have seen a 4.3% annual increase, which is not as high, but still on the rise compared to September’s 4% level. But that’s lower than the 4.5% annual level we saw in July that was the highest increase in Core CPI since 1991.
Obviously people are keeping an eye on whether inflation is getting out of hand and showing signs of being persistent, but since we just had the comments from the Federal Reserve last week, it may ease some of the uncertainty. Jerome Powell assured that the Fed wouldn’t allow high inflation to become a permanent feature of American life.
However, he did also point out that inflation would be high well into next year and also gave the Fed’s definition of transitory, which was about whether the inflation level would leave permanently high inflation. He made it clear that it’s not necessarily about the length of time the inflation lasts for. The Fed looks at medium-term inflation and is accountable for that.
At the moment it’s clear that a lot of issues with inflation are due to supply chain issues and monetary policy isn’t best placed to deal with supply issues. So raising rates isn’t going to solve the issue of cost-push inflation. On the other hand, the Federal Reserve is targeting maximum employment and we had very strong numbers coming out on Friday for October, as well as upwards revisions of previous months.
The issues with supply chains and a large amount of job vacancies has pushed up wages and salaries rapidly. But for now, Jerome Powell didn’t see there being issues with wages or any kind of wage-price spiral.