This week’s release of the August CPI report indicated lower than expected inflation. The headline numbers were the annual price increases: 5.3% actual vs 5.4% expected. Markets focused on the monthly increase in core CPI which rose just 0.1% vs 0.3% expected. Supply chain issues are proving to be “stickier” and less “transitory” than previously thought, (example: computer chip shortages which are shutting down major segments of auto production and delivery are expected to continue well into 2022). This report should give the Fed some breathing room to start pulling back on bond purchases near year end and not push tapering to start sooner. The 10 year is at 1.30%.
The Fed meets next week. Speaking of “the data”, the traditional CPI report from the Labor Department’s methodology does not track prices of goods purchased online. Adobe Digital Insights released a report this week indicating that online prices have risen for 15 consecutive months and increased by 3.1% year over year. This is significant as online prices fell at a 3.9% annual rate from 2015 to 2019. The willingness of online sellers (Amazon) to accept lower margins for greater market share has helped keep inflation in check for much of the post Great Recession era. Also, online purchases grew from 16% of consumer spending in 2017 to 20% today. The pandemic increased this of course as people are now buying a wider variety of goods online. The inflation “sticky” vs “transitory” debate is not settled. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners