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Inflation Still Rising; Fed To Taper; Global Data Hitting Forecasts

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Global Economics – October 15, 2021

Introduction

Elevated price pressure at the consumer level has yet to abate much in the US, in what appears to guarantee the start of tapering at the next month’s FOMC. Out of the committee’s 18 members, 11 by Econoday’s count have made it clear they’re in favor of immediate tapering and none have voiced opposition. The only detail of the tapering that has been firmly stated is its end date sometime in the middle of next year, a limited time frame that points to sharp cuts in the Fed’s $120 billion per month buying program. How much incoming inflation data will play in the pace and degree of tapering is uncertain, but the latest news isn’t pointing to the luxury of time.

The Global Economy

Inflation

The first definitive data on US inflation in the month of September were headlined by a 0.4 percent monthly rise in consumer prices, up 1 tenth from August’s 0.3 percent rise for an annual rate of 5.4 percent, which was also up 1 tenth. Rising energy prices are behind much of the increase as the CPI excluding energy and also food rose only 0.2 percent for an annual rate of 4.0 percent, both readings unchanged from August.

Also unchanged from August are year-ahead inflation expectations at the business level, at 3.1 percent this month which sounds tame but is a record high for this reading. And showing outright acceleration are year-ahead inflation expectations at the consumer level, up 2 tenths to a 4.8 percent level that is no less elevated. How much of this pressure will make a lasting psychological impression on everybody is still in play, evident in a 2 tenths decline in 5-year consumer expectations to 2.8 percent.

US inflation

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