The week in review
- U.S. job openings fall to 10.4M
- PPI for final demand +0.6% in Oct.
The week ahead
- Retail sales
Thought of the week
U.S. inflation, as measured by CPI, rose at its fastest pace since 1990 in October. Headline CPI surged 6.2% y/y (+0.9% m/m), led by increases in energy (+4.8% m/m), used and new vehicles (+2.5% and +1.4% m/m), food (+0.9% m/m) and shelter (+0.5% m/m). Yet another hot CPI print is causing many to consider just how transitory inflation really is. Though there is no official definition on the difference between transitory and sticky inflation, components related to the reopening story are likely to be transitory, while inflation due to a broad increase in wages or prices is likely to be sticky. For example, higher auto prices are clearly transitory.
The chip shortage is currently limiting inventories and thus, driving up vehicle costs; however, as supply improves, prices should moderate. On the other hand, higher lawyer fees are a hypothetical example of something sticky. There is no particular shortage of lawyers and if prices are rising here, it is more a reflection of general excess demand or too much money chasing too few goods and services. Even as the pandemic recedes, wage growth will continue to put upward pressure on inflation for some time. As illustrated in the chart, the reopening/transitory components of inflation were the main culprits behind price pressure earlier in the year; however, the non-reopening/stickier components are beginning to gain momentum.
Looking ahead, as the Fed begins tapering, the transitory argument is becoming harder to make, increasing the likelihood that the Fed may increase short-term interest rates faster than its recent public statements may have suggested.
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