Imports rose by 0.5% and exports by 1.3%. This time the devil wasn’t in the details. He put himself in the headlines that led the coverage. Rising energy prices were the culprit. The only one to blame. And inflation, as we know, is the sustained and general increase in the price index and not of a specific item. At the pump, the price of gasoline rose 10.6%.
It was a hit in the pocket. Energy prices have risen sharply, but inflation has not. Core inflation was barely affected. The core retail version rose 0.3%, after rising 0.2% in June and July. A trifecta was expected, but it was not to be. The 2 percent increase in the cost of transportation services, a secondary effect of rising energy prices, dashed this expectation.
However, it did not affect the final grade. The Fed did not comment (there is radio silence due to the embargo that weighs on its public opinion before each meeting). The markets, yes. And whoever is silent grants. There was no complaint, but a clear relaxation. The anti-inflation saga continues, it is not settled yet, but it is on the right track.
How lasting the recent energy shock will be is unknown. OPEC plus renewed its crude oil production cuts at a time when the US is depleting its strategic reserves and should be replenishing them. After a long struggle, he finally managed to raise the price of WTI barrels to around $90 per barrel (and even higher for Brent barrels). If revenge is a dish served cold, the oil cartel prefers reheating. In the short term, this depends entirely on him keeping his word.
Is infection perceived? No. Electricity bills (+0.2%) and gas bills (+0.1%) suffered no losses. If the pressure continues, it could spill over there, but there is no sign of that yet. Other segments that were still simmering until recently are no longer in the mood for excess.
Used car inflation, for example, has been declining for three months and fell 6.6% last year. Core physical inflation was barely 0.2% over the last twelve months. Housing services inflation remains, but it is the chronicle of a predicted disappearance (all the more so since mortgage rates are at 7%).
What will the Fed do? It introduced a pause in June, triggered a quarter-point rate hike in July and will repeat the step aside on Wednesday. No one, not even the hawk Waller, disagrees with the “watch and wait” plan. And August inflation is already nailed down. However, they need to check their economic forecasts. Inflation is in line with estimates. But with the GDP increase they fell short of expectations, very narrowly. And like Caesar’s wife, they must be committed to the cause and appear as if they are.
It would be enough to increase the final rate by a quarter point, bringing it to 6%. It will not be decided until November whether the step from 5.5% to 5.75% will be implemented. And the half or quarter point left in the glove compartment serves to numb speculation about when to start cutting rates.
With the approval of inflation and the success of ARM’s initial public offering (up 25% on the first day), Wall Street tried to attack. He wanted to surprisingly restart the rally, but couldn’t.
The S&P 500 and Nasdaq attacked on Thursday, crossing the Rubicon of the 50-wheel average, but the offensive failed with options expiring three times. And the retreating watershed had to be crossed again. The ECB raised interest rates by a quarter point and suggested that this could be the end of the journey
. China is showing signs of life and not a catastrophe. The future is promising. The present is still swampy. The Republicans are parodying an impeachment trial against President Biden and at the same time have to agree on the budget that will govern from October. If the dialogue does not take place, the government will have to be partially closed.
Nothing serious. Turbulence. But to overcome them, an unseasonal effort is required. That’s why it’s not just the Fed that prefers to watch and wait. Let the balance sheets come, mid-October and after the political tensions, and let them decide the course.