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US inflation slows a bit
The Graphic Truth: US inflation slows a bit, but ...
The US inflation rate for August was released on Tuesday and the figures are sure to cause anxiety in the White House. Overall, the consumer price index, which measures a range of consumer prices, rose 8.3% from the same time last year – 0.2% more than many economists anticipated – though it’s down from 8.5% in July and 9.1% in June.
Indeed, the latest findings surprised many analysts who predicted that the drop in US gas prices in recent months – down from $5 a gallon in June to a current national average of $3.70 – is a sign that the economy is cooling across the board.
But that doesn’t seem to be the case. The ongoing war in Ukraine and related global supply chain issues have meant that food and energy prices remain sky-high. The US Department of Labor’s food index rose a whopping 11.4% in August year-on-year, up 0.8% since July – marking the largest increase since Sony introduced the walkman.
While Americans opting for alternative transportation (carpooling, public transport) may be contributing to weaker demand and lower gas prices, families have fewer options when it comes to food consumption. Even prices of no-frills staples like flour, butter, and potatoes are still on the rise.
What’s more, core inflation – which excludes notoriously volatile food and energy prices – continues to surge, suggesting that Americans are still grappling with too-high prices for commodities like medications, furniture, and new cars. Meanwhile, energy markets remain volatile as European efforts to ditch Russian natural gas have caused shortages and price shocks around the globe.
The CPI report shocked the markets, sending the Dow down nearly 1,300 points amid concern that the US Federal Reserve would continue to raise interest rates in order to cool the economy, resulting in investors pulling money from the markets. The Fed will hold its monthly policy meeting next week, and it is expected to again raise rates by 0.75 points, which would be its third three-quarter point hike in recent months.
Federal Reserve Chair Jerome Powell said in a keynote address last month that efforts to curb inflation would not be painless. He explained that the Fed would continue with its aggressive strategy despite fears that too much belt-tightening could lead to mass layoffs and recession.
Inflation has thwarted the US’ post-pandemic recovery for months and fueled President Joe Biden’s tanking poll numbers ahead of midterm elections this November. Things were starting to look a little better for the Democrats in recent weeks after Biden enjoyed several legislative successes. But more bad economic news could be a boon for Republicans who already have the strategic advantage of not belonging to the same party as the incumbent president.- Podcast: Inflation nation: How Larry Summers predicted skyrocketing prices in the US - GZERO Media ›
- Inflation nation: What’s driving US prices higher? - GZERO Media ›
- Larry Summers: Rising inflation makes society feel "out of control” - GZERO Media ›
- Why "cheap money" is worrying billionaire US investor Ray Dalio - GZERO Media ›
- No optimism after Austrian leader’s meeting with Putin on Ukraine - GZERO Media ›
- Want to help poor countries now? Open your markets to their farmers, World Bank chief tells wealthy nations - GZERO Media ›
- Are we in a recession? - GZERO Media ›
- Ask An Economist: How to lower inflation - GZERO Media ›
Retail investors playing key role in driving market volume
Betty Liu, Executive Vice Chairman for NYSE Group, provides her perspective:
What's been the role of the retail investor over the past few months?
So, US equity market volumes have been pretty high, remarkably high since the end of February 2020, and much of that is being attributed to the rise in retail investment activity. In fact, on peak market days, retail investors can account for up to a quarter of all market activity.
Is this the case for the options market as well?
So, absolutely. In fact, the options market has seen a spike in individual investment activity. That has driven volumes to record highs. So, eight of the top ten multi list options volume days have occurred in the first six months of 2020. So, pretty remarkable indeed.
Why more companies are going public now
Betty Liu, Executive Vice Chairman for NYSE Group, provides her perspective:
Over the past few weeks, more companies have been going public. Why is that?
Well, as you might recall, back in March, when we first saw the pandemic erupt, the markets were extremely volatile. And in fact, we triggered the market wide circuit breakers a total of four times between March 9th to 18th. At that time, you had some companies tap the capital markets to raise funds for short term funding needs, but there weren't a lot of IPOs. Now the markets are a little bit more calm, so to speak, and that means that the IPO window is opening. You've seen companies like Albertson's, Dun & Bradstreet and Lemonade go public in just the last few weeks.
What is the IPO window?
So, some analysts refer to this as the open window when private companies can tap the capital markets and go public. So, this window is usually at a time when the market conditions are more conducive to a company raising funds and going public. And that is exactly what is happening right now.
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