August CPI Report: Inflation Cycles Are Non-Linear; Rotate; Service Inflation Cycles Hard to Break
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The August report on consumer prices shows that inflation cycles are not linear; inflation patterns rotate, and service sector inflation cycles are hard to break.
In August, headline consumer prices rose 0.6%. That represented the most significant month-over-month increase since June 2022. Also, that broke a 13-month pattern of successively lower headline annual inflation readings, proving that inflation cycles are not linear, up or down.
Second, commodity (or goods) prices rose 1% last month, which accounted for much of the acceleration in the headline. That was only the fourth time in the previous fourteen months that consumer commodity prices increased, illustrating that inflation patterns tend to rotate over time, with some items growing almost every month and others occasionally.
Third, in August, consumer service prices rose 0.4% and 5.9% in the past twelve months. Since the mid-1980s, consumer services inflation cycles have reversed after the federal funds rate exceeded the inflation rate, sometimes substantially. Consumer service inflation is still above the current fed fund rate range of 5.25% to 5.5%. Several analysts argue that the Fed tightening cycle is over. The history "bookie" says the odds of another rate hike are higher than what analysts think.
Joseph G. Carson
AuthorMore in Author Profile »Joseph G. Carson, Former Director of Global Economic Research, Alliance Bernstein. Joseph G. Carson joined Alliance Bernstein in 2001. He oversaw the Economic Analysis team for Alliance Bernstein Fixed Income and has primary responsibility for the economic and interest-rate analysis of the US. Previously, Carson was chief economist of the Americas for UBS Warburg, where he was primarily responsible for forecasting the US economy and interest rates. From 1996 to 1999, he was chief US economist at Deutsche Bank. While there, Carson was named to the Institutional Investor All-Star Team for Fixed Income and ranked as one of Best Analysts and Economists by The Global Investor Fixed Income Survey. He began his professional career in 1977 as a staff economist for the chief economist’s office in the US Department of Commerce, where he was designated the department’s representative at the Council on Wage and Price Stability during President Carter’s voluntary wage and price guidelines program. In 1979, Carson joined General Motors as an analyst. He held a variety of roles at GM, including chief forecaster for North America and chief analyst in charge of production recommendations for the Truck Group. From 1981 to 1986, Carson served as vice president and senior economist for the Capital Markets Economics Group at Merrill Lynch. In 1986, he joined Chemical Bank; he later became its chief economist. From 1992 to 1996, Carson served as chief economist at Dean Witter, where he sat on the investment-policy and stock-selection committees. He received his BA and MA from Youngstown State University and did his PhD coursework at George Washington University. Honorary Doctorate Degree, Business Administration Youngstown State University 2016. Location: New York.
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