Oil Prices Increase - Inflation

Oil prices recently surged, pushing the headline Consumer Price Index (CPI) up from 3.3% YoY in July to 3.7% YoY in August. However, Core CPI, which excludes food and energy, fell from 4.7% to 4.4% YoY. The Fed focuses on Core CPI, as it can't control food or energy costs. This decrease is good news, but it's still well above the Fed's 2% target. [Schroders]

Please Note that Headline inflation looks at how prices for everything we buy are going up—like rent, pet food, gas, and even a doctor's visit. Core inflation looks at the same stuff but doesn't include the costs of food and energy, like gas or electricity.

Retail sales went up 0.6% in August, but most of that is because of more expensive gas. If you take out gas sales, the increase is just 0.2%. Remember, these numbers don't show whether people bought more stuff, just that they spent more—so higher gas prices mean higher sales, even if people bought the same amount of gas. [Census.gov]

 

In September 2023, a report showed fewer people were buying homes and sales were slower than in August. This usually happens as seasons change, but high mortgage rates over 7% and not many homes available are also making things slower. [MBS Highway]

My Notes

The next meeting for the Fed, who control interest rates, is on September 20. Most people—93%—think they won't raise rates, so no surprises there. But what happens next? Unlike Europe's Central Bank, our Fed probably isn't done making changes. [Federal Reserve Calendar]

 

Recently, info on inflation and jobs has been all over the place, giving both worrywarts and optimists something to talk about. What's concerning is that some people think we'll smoothly adjust to these changes. But history shows that when the Fed raises rates, it often leads to tough economic times.

The blue line represents the Fed's interest rate, while the grey bars indicate periods of recession. It usually takes 6 months or more for the economy to feel the impact of increased borrowing costs.