Economic data posted in November reinforced what we’ve been hearing on Q3 earnings calls, and that is prices/costs are rising for goods and services of all types. Fed Chair Powell, in his testimony before Congress yesterday, volunteered that the term “transitory” should be removed from the Fed’s lexicon going forward. This somewhat tacit admittance of defeat on the inflation front suggests the Fed is squarely behind the curve in addressing rising inflation and will need to accelerate tapering in order to begin raising short-term interest rates. Both bond and stock markets reacted immediately to the news.
Consumer prices accelerated by +0.9% MoM in October, far ahead of the +0.6% estimate and September’s +0.4% gain. This translates to a +6.2% YoY increase, the highest we’ve seen in 30 years. Producer prices ticked up +0.4% MoM, slightly below expectations; however, they’ve surged +8.6% YoY. Even stripping out volatile food and energy prices, CPI is up +4.6% YoY and PPI +6.8% YoY. The Fed’s favored inflation measure, the PCE Deflator, rose +0.6% for October and is up +5.0% YoY.
Housing remains perhaps the biggest beneficiary of the Fed’s easy-money policy as sub-3% mortgage rates continue to entice would-be homeowners into an increasingly expensive market. The S&P CoreLogic CS 20-City Home Price Index rose +0.96% in September, which translates into a +19.0% YoY increase. Pending Home Sales surged +7.5% MoM in October while Building Permits rose by 4.0%. After hitting a recent peak in early 2021, the Housing Affordability Index has declined by -16% as building costs continue to rise. Employment gains kept up in October as Nonfarm payrolls increased a better than expected +531k. Private payrolls surged by +604k as Average Hourly Earnings ticked up by +0.4% MoM. This +4.9% YoY rise in wages has thus far had modest influence on the Labor Force Participation Rate, which remains stuck at 61.6%, down from the pre-pandemic level of 63.4%.
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