Is Inflation Slowing Down? Investors Are Always Look To Get Ahead Of The Fed Meeting

Key Takeaways

• The recent inflation data indicates that prices aren’t rising as quickly as they were, but they are still rising.
• Despite numerous rate hikes to slow the economy down, inflation is still increasing with a few exceptions like rent and gas.
• Another rate hike will hopefully take the fizz off the top of consumer prices over all, but raises concerns about future jobs data and stock prices.

It’s been impossible to ignore inflation as everything around us has become more expensive over the past year. In June of 2022, inflation hit a 40-year high, and the entire economy felt the impact of the surge.

Some economists were hopeful that in August, inflation would be tamed and possibly decrease since gas prices and rent had started to drop. This brings us to the question of the day, is inflation slowing down?

We’re going to look at the most recent data to see if there’s any positive news regarding inflation.

How Did Inflation Get So High?

While many economists feared inflation wouldn’t be transitory, the Fed insisted on just that in the spring of 2021. The Fed assured the public that inflation was being caused by a unique set of circumstances, pointing to the increase in demand caused by loosening pandemic restrictions. Supply chain issues and increasing demand were supposed to lead to a temporary price increase that would eventually subside.

But by December, it was clear that inflation wasn’t going to slow down any time soon. So the central banks have been raising interest rates throughout 2022 in an attempt to bring inflation down. As the rate hikes continue, economists are tracking key metrics, from the labor market to commodity prices to see if the actions by the Fed are leading to the desired economic slowdown and reduced inflation.

Did Inflation Fall In August?

It was announced on September 13 that inflation fell slightly from the previous month to 8.3% in August. The U.S. Bureau of Labor Statistics reported the Consumer Price Index (CPI) rose 0.1 percent in August after remaining flat in July. This means that all the items indexed have increased 8.3% over the last 12 months. The CPI is the inflation metric that mirrors the economy’s overall trajectory.

Core inflation, which doesn’t include volatile products like food and energy, rose by 0.6% for an annual rate of 6.3%. The month-on-month gain here of 0.6% was double what economists had expected. This disappointing news led to stocks tumbling as the stock market reacted negatively.

It’s worth noting that the inflation number is down from the 40-year inflation high of 9.1% in June. The 8.3% figure is also an improvement from July’s 8.5% annual gain, but it remains surprisingly high, and it’s nothing to celebrate.

The price of gasoline dropped 10.6% from July, which was a promising figure for a volatile category. The drop in gas prices was countered with an increase in energy services as electricity costs went up. The largest increases were in shelter, food, and medical care costs. The cost of buying groceries and eating out increased again in August. The overall food index went up 11.4%, the largest annual gain since May of 1979.

Is inflation slowing down at all?

Unfortunately, it looks like overall inflation is not slowing down yet. The recent numbers indicate that prices aren’t rising as quickly as they were, but they are still rising. The consumer price index increased 0.1%, meaning the Fed will likely announce another rate hike this month, yet another increase since they started raising rates to fight inflation in March.

Inflation appears to be relentless, and if the central bank continues increasing rates, that means a further economic slowdown and more pain for everyday people. Many fear these rate hikes could hurt the resilient labor market.

Why did experts expect inflation to drop?

The latest inflation numbers were disappointing because there was hope that inflation was finally slowing down after soaring for so long. Some considered this optimism wishful thinking, while others pointed to data that appeared to be promising.

Before the release on Tuesday, economists looked at falling rent prices and the strong labor market as a sign that inflation would inevitably taper down. On top of that data, economists expected the sharp drop in gas prices to pull inflation down overall.

The recent supply chain improvements were also helpful in getting goods into consumers’ hands much quicker, which would also take some of the fizz off the top of retail prices. However, the positive metrics weren’t able to bring down inflation overall as prices rose quickly in other areas.

What should we look at with inflation?

Inflation generally means the prices of everything increasing. In this latest round of inflation numbers, it was rent, furniture, dentist visits, and take-out meals that became much more expensive. While supply chain issues appeared to be improving, this wasn’t enough to bring down the prices of everything in the economy.

Some economists have warned that the unemployment rate may increase in the fight against inflation. This is unwelcome news as it means that jobs would be lost, hurting the labor market, and dimming a current bright spot in the economy. If the labor market is damaged, there’s a chance of a recession since employment numbers have been propping the economy up.

It seems that the Fed will be scrambling at today’s meeting as they continue working to bring supply and demand back into balance. The rates have been raised from near zero in March to the range of 2.25% – 2.5% with another increase to come this week. This is the fastest set of rate increases since the 1980s.

We’ll have to wait and see if borrowing money becomes expensive enough to cool consumer spending.

What’s next for inflation?

Since the battle against inflation is ongoing, it’s expected the Fed will hike interest rates by 0.75% again. We could see a smaller rate hike too, closer to 0.25%. Still, a Fed rate hike is a given now, though the more immediate concerns are around how the labor market will respond. If this next rate hike leads to a larger economic slowdown, we could see many people losing their jobs since borrowing money could become too expensive for many businesses.

The Chief Economist at Moody’s Analytics, Mark Zandi, said that job and wage growth must slow down sharply. This will help improve the economy while hurting many folks in the process. Central bankers want to slow the economy down enough to cut back on job openings without hurting it so much that unemployment goes up. This is a difficult balancing act that we have to watch play out. It’s worth noting that the labor market added 315,000 jobs in August.

Historically speaking, you never see the labor market cool down without unemployment going up. This means that the labor statistics are going to be a point of emphasis over the next few months.

If inflation doesn’t flatten off, rates will keep increasing until the economy slows down even more. The harsh consequence is that this could bring us into an official recession if the overall economy decreases enough.

The CPI for September will be released on October 13, 2022.

How does inflation impact your portfolio?

With the price of everything increasing, you have to earn more on your money just to keep up. Investors will continue to dump stock during times of high inflation and a possible recession caused by the rate hikes could hurt your investments even further.

It’s important that you make your portfolio defensive during times of uncertainty. Take a look at Q.ai’s Inflation Kit and protect your investments from dropping in value. Better still, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industries you invest in.

The Fed will continue to raise rates until the battle against inflation is done. This means that you have to prepare yourself financially for the worst-case scenario, with the cost of borrowing going up and stock market sell-offs likely to continue. We’re going to pay close attention to how the economy reacts to rate hikes.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.