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By Nicholas
Jasinski | Thursday, March 10 Inflating. Another month, another
40-year high in the rate of U.S. inflation. This morning's consumer
price index for February showed a 0.8% rise from a month
earlier, for a 7.9% annual pace. Increases were broad across categories,
including in prices of gasoline, rent, groceries, and more. The core CPI,
which excludes energy and food components, rose 0.5% in February and 6.4%
year over year. The S&P 500 fell 0.4% today,
the Nasdaq Composite lost 0.9%, and the Dow
Jones Industrial Average declined 0.3%. Here's Barron's Megan Cassella
with the
details from today's CPI report: Even beyond gas, rent, and
groceries, prices are rising across the board, the Labor
Department said. Prices for airfares, car insurance,
recreation, personal care, and household furnishings are all contributing as
well. And several categories are recording their largest annual increase in
prices ever, including chicken, baby food, car parts, and lodging away from
home, a category that covers hotels. There is little in the report to suggest
that the rapid pace of price increases could start to slow soon, particularly
given that the impact of the new U.S. ban on imports of all Russian oil, gas
and energy is only just starting to trickle through the economy. Rent prices,
too, are expected to keep headline inflation elevated for months, economists
say, in part because those costs can lag on a 12- to 18-month cycle behind
housing prices. The implications of continued multi-decade
high inflation readings are several. It heaps additional pressure on the Federal
Reserve to raise interest rates and fulfill its
stated goal of getting inflation back toward its 2% annual target. Faster or
larger increases in target rates than the market is expecting would be
negative for asset valuations, and would represent a greater shock to the
economy than smaller, more gradual increases. But a Fed that's behind the
curve on inflation could have no other choice, some worry. Higher prices at the pump and at the grocery
store could also weigh on U.S. consumers' discretionary spending. That would
be another headwind for an economy that's more than two thirds driven by
consumer spending. An optimistic data point is last week's
February employment data. There's no doubt that the U.S. job market is in
great shape, with plenty of demand for workers and wages on the rise. Still, continued hot inflation and the Fed's
need to react forcefully, the impact of rising costs on consumers and
businesses, and now the war in Ukraine and resulting sanctions on
Russia—when all considered together and worst-case scenarios are imagined,
it's possible to make the case for a potential recession in the U.S. in the
not-too-distant future. It's a word that hasn't been raised much since the
economy began its rebound from Covid-19 lockdowns in the spring and summer of
2020. "The recession drumbeat is gaining in
volume," wrote Nancy Tengler,
CEO and CIO of Laffer Tengler Investments,
today. "Of course there are many reasons to be concerned. Soaring
inflation, rising energy costs, an almost sure recession in the euro zone,
and a dangerously flat yield curve." (More on the yield curve below.) That doesn't mean a potential recession need
be long and deep. But it's still a new risk for investors to take seriously,
one that wasn't part of serious conversations until a few weeks ago. The Federal Reserve's policy committee meets
next Tuesday and Wednesday. Chairman Jerome Powell's post-meeting
press conference on Wednesday afternoon will be must-watch TV for investors
and economists. |
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