US Prices Pile Up

Image source: Bundesarchiv

What's going on?

Fresh data out on Thursday showed that US consumer prices rose more than expected last month.

What does this mean?

The Federal Reserve (the Fed) might be aiming its rate hikes at inflation, but the only thing it seems to be hitting right now is the economy: after raising rates five times this year, the combined three-percentage-point bombardment has left markets riddled with more holes than Swiss cheese while inflations stayed relatively unscathed. And sure, inflation has dropped off in areas like energy and used vehicles, but the overall price of goods and services rose by 0.4% between August and September, double the 0.2% economists were expecting and up 8.2% on September last year. Shelter, food, and medical care were the biggest contributors to that gain, which with inflation-adjusted average hourly earnings down 3% from last year could make ordinary life extraordinarily expensive.

Why should I care?

For markets: Better to fear too far than trust too far.
Minutes from the Feds meeting were released earlier this week, and they show that one philosophy reigns supreme: its better to do too much rather than too little in the fight against inflation. Translation: theres plenty more where those hikes came from, especially with prices still on the rise. Traders, already betting on a 0.75 percentage point hike next month, now predict another one come December which could explain why the S&P 500 dropped when Thursdays inflation data emerged.

The bigger picture: Winter is coming.
Energy prices might have eased off last month, but that doesnt mean households will have it easy compared to previous winters. In fact, the Energy Information Administration (EIA) predicts that higher prices and an especially frosty winter will drive household energy bills skyward. It expects that people who heat their homes with natural gas over half of US households will pay 28% more this winter than last, while households that rely on electricity will see an uptick of 10%.

Originally posted as part of the Finimize daily email.

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