The latest inflation reports are in… Is the wild over?

VaselineSeptember 12, 2024

0 5 minutes read

The latest inflation reports are in… Is the wild over?

If you’ve been on a rollercoaster, you know there’s nothing like the slow and steady climb up. You feel a mixture of anxiety and anticipation. You know that any second you will reach the top before you plunge down.

Well folks, you don’t have to go to an amusement park to experience these feelings. Inflation can take you on a similar journey.

Like a rollercoaster, inflation can be dizzying and unpredictable. And the best way to pinpoint what’s driving inflation up or down is to track two key reports: the Consumer Price Index (CPI) and the Producer Price Index (PPI).

These reports act as the blueprint for the roller coaster, giving you clues about the highs, lows, reversals and upcoming reversals that influence daily prices.

So, in today’s 360 Squarelet’s talk about this week’s inflation reports. We will then assess what to expect from the Federal Reserve and its rate cut decision at next week’s meeting.

I want to note, however, that while investors have been focused on inflation, there is another financial event that is set to throw the markets on another chaotic ride. So, I will be sharing the details of this upcoming event with you today as well.

Looking at the inflation plan

Consumer Price Index (CPI)

Yesterday morning, the latest CPI report was released and the markets were not happy.

The CPI rose 0.2 percent in August, which was in line with economists’ expectations. Year-on-year, CPI rose 2.5%, just below expectations for 2.6%, marking the slowest 12-month increase since February 2021.

The disappointing news came from the base rate. The core CPI, which excludes food and energy, rose 0.3% in August and stood at 3.2% year-on-year. Economists had called for a monthly increase of 0.2 percent and an annual increase of 3.2 percent.

Looking deeper into the numbers…

The energy index fell 0.8% after being flat in July.
The food index rose 0.1 percent in August, after rising 0.2 percent in each of the previous two months.
The index for used cars and trucks fell 1 percent, after a 2.3 percent decline in July.

Now, I should also add that Owner Equivalent Rent (OER), or shelter costs, has been one of the biggest sticking points to further cooling of inflation for some time. The index rose 0.5 percent in August and rose 5.2 percent year-to-date. So despite evidence that house prices are down across the country, it’s not yet showing up in the data.

Producer Price Index (PPI)

I had a look at the latest PPI report this morning and it met expectations.

The PPI rose 0.2 percent in August, which was what economists had asked for, and the index rose 1.7 percent over the past 12 months. That’s down from 2.1 percent in July and the lowest annual figure since February.

Core PPI, which excludes food, energy and trade margins, rose 0.3% in August. That’s the same reading as in July, but it was slightly above expectations for a 0.2% increase. And over the past 12 months, the core PPI has risen by 3.3%.

Dig further into the details…

Services on final demand rose 0.4% in August, after falling 0.3% in July. One of the biggest drivers of this increase in August was due to guest room rents, which rose 4.8%.
Final goods demand was unchanged in August after rising 0.6% in July.
Food prices rose only slightly, at 0.1%.
Energy fell 0.9 percent after rising 1.8 percent in July.

The bottom line is that when you look at the report as a whole, there are no alarm bells to warrant panic on the part of the Federal Reserve. It suggests that inflation is cooling enough to fall within the central bank’s target range.

Will these reports affect the Fed?

Now, the Federal Reserve is set to cut key interest rates at its policy meeting next Wednesday, September 18. And these economic reports won’t change that.

The truth is that inflation has finally been reduced. The Fed’s favorite gauge of inflation – the core component of the Personal Consumption Expenditure (PCE) index – showed that inflation is finally within the Fed’s 2% target. We’ll take a look at the August numbers on September 27.

I should also add that the 10-year Treasury yield has fallen to around 3.7%. In fact, all Treasury yields fell, thanks to this week’s inflation reports. So this puts even more pressure on the Fed to cut rates because they need to get back in line with market rates.

Also, the yield curve is now officially inverted, meaning that the 10-year Treasury yielded higher yields than the 2-year Treasury yield. This is a sign that things are back to normal in the bond world, folks.

It also eases recession fears. Some analysts believe that an inverted yield curve is a good indicator that a recession is imminent. Fortunately, that was not the case this time.

So a rate cut is in store next week and will be the first cut since March 2020. We’ll also get the latest outlook on rates going forward in the central bank’s latest dot plot survey.

The Fed’s dot chart is a quarterly chart that shows the Federal Open Market Committee (FOMC) members’ forecast outlook for monetary policy over the coming months and years. And it’s incredibly important right now because the previous “dot plot” from June showed just one key rate cut for 2024.

Now, previous dot charts were anticipating more tapering, and I suspect the Fed’s September dot chart will again be in line with previous expectations. In fact, I anticipate three key interest rate cuts this year: one on September 18, one after the presidential election in November, and then another in December.

The start of another wild ride

I know we’ve been on this inflationary rollercoaster for some time, but I think it should stop soon. Next week’s Fed meeting should also help markets stabilize and move higher.

But as mentioned above, there is a different journey on the horizon and one of many not see it coming…

It’s so bad I call it a financial tsunami.

When this big wave hits the ground, its impact will be more violent and severe than any financial crisis we have ever seen.

And let me be clear… financial tsunami what will destroy our economy is artificial intelligence.

The truth is that anyone who tells you that AI is hype or a fad has not studied the history of technological disruption. They are not paying attention to what is happening today. And I certainly don’t understand where we’re going.

Artificial intelligence is a completely new economic force, it will change society and it is unlike anything you have seen before. So how can you survive?

Some may think that the best way to survive this tsunami is to move off the grid or buy gold. But the reality is that the way to protect yourself is by investing. Owning shares in world-class companies has always been – and will continue to be – an essential bulwark in times of technological change.

The stock market is the only place I know of that allows you to align yourself with the innovators, entrepreneurs, and wealthy corporations that get an early critical point in these new technologies.

In other words, it’s time to go stock picking – and we found nine world-class AI and quantum computing stocks that are great buys right now.

Click here to find out how you can access this exclusive stock portfolio.

Sincerely,

Louis Navellier

Editor, 360 Square

VaselineSeptember 12, 2024

0 5 minutes read

Vaseline

Related Articles

David Tepper says the Fed needs to cut rates at least two or three times to keep its credibility

US recession would be much more likely without Fed rate cut: Macquarie By Investing.com

These were the 5 biggest companies in 1984 and here are the 5 biggest companies now

Bitcoin price loses traction as miner profits drop and spot BTC outflows persist