The latest consumer price index is due out Thursday morning, and once again investors, central bankers, and politicians are waiting with bated breath to find out if inflation continued to slow down last month, as it did in August, or if it ramped back up.
Why all the suspense? While inflation is near a 40-year high, many economists have predicted since the summer that the worst is behind us. So far, that theory has mostly proven true, even as the slowdown in price gains has been gradual to say the least.
Another CPI release is another opportunity to see if this prediction is holding steady.
Meanwhile, sitting on the sidelines is the Federal Reserve. The central bank has aggressively raised interest rates over the last year, dragging down stocks, and bringing the housing market to a screeching halt — all so that it can put a dent in inflation.
If inflation continues to moderate, the Fed could ease up on rate hikes. If inflation moderates too slowly, or accelerates, additional massive rate hikes could be forthcoming, which wouldn't bode well for the stock market or debt-distressed countries.
To prepare for Thursday's report — and the inevitable public discussion that comes in its wake — here are some of the key numbers, quotes, and headlines to keep in mind.
First, here are August's CPI numbers for comparison:
- Year-over-year inflation was up 8.3 percent in August, down from a recent peak of 9.1 percent in June, but still well above the 1-2 percent range of the past decade.
- Starting in July, year-over-year CPI began to moderate, with a zero percent month-over-month gain that was widely celebrated, including by President Biden
- Alas, inflation ticked back up 0.1 percent in August, again fueling uncertainty.
Looking closer at the August release, it's clear:
- Falling energy prices were a major contributor to moderation, even as price increases in shelter, food, and medical care put upward pressure on the index.
- Overall, there's been a steady shift from inflation in durable goods, such as used cars, to more widespread inflation in essential goods and services.
As for what's expected Thursday, here's a breakdown of predictions:
- Most major banks are predicting the headline number to continue to fall to around 8.1 percent, while they expect a jump in the month-over-month rate to around 0.4 percent, which would be the highest monthly gain since June.
- In addition, the latest producer price index, a separate measure of inflation that tracks wholesale prices, declined for the third month in a row, even as it remains historically high 8.5 percent year-over-year.
The big political question going into the release is how the Federal Reserve will respond, yet Fed officials have been pretty consistent in spelling out their thinking.
Vice Chair Leal Brainard, for example, said that "inflation from core services is expected to ease only slowly from currently elevated levels" whereas inflation in core goods was expected to fall and offset some of those gains. That wasn't the case in August, she noted, which came as a surprise and adds to the uncertainty around the September data.
Fed Governor Christopher J. Waller also noted that the August report didn't provide much evidence that it was time to slow down on rate hikes.
"This is not the inflation outcome I am looking for to support a slower pace of rate hikes or a lower terminal policy rate than projected in the September 2022 SEP," he said in a speech last week. "And, though there are additional data to come, in my view, we haven't yet made meaningful progress on inflation and until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed's balance sheet, to help restrain aggregate demand."
The Biden administration, meanwhile, continues to emphasize the severity of inflation, listing it among other challenges such as climate change as a major security threat.
"These shared challenges are not marginal issues that are secondary to geopolitics," read a White House statement. "They are at the very core of national and international security and must be treated as such."
