Inflation index remains near record highs, economists unsurprised


While most traders were paying attention to some of the faster-moving stocks on Wednesday, the markets were also reacting to a slew of new economic data that came out yesterday. Besides the weekly jobless claims figures, which we’ll be seeing on Thursday, the Labor Department also provided an update on a key inflation metric, with the results showing that inflation might be here to stay for a while longer.

In particular, the Labor Department released figures concerning the consumer price index (CPI), which was up 5.4% in the month of July compared to last year. Back in the prior month, June’s CPI also grew by a 5.4% rate, which happens to be the fastest the CPI has grown since 2008. For inflation-paranoid investors, the CPI’s sudden jump is seen as a worrying sign. Over the 30-day period between July and June, the seasonally adjusted CPI was up around 0.5% between the months.

When one factors out the more volatile categories from the CPI, which include food and energy, what’s left over is called the core price index, which is seen as a stabler reflection of how consumer prices are growing. This core index was up 4.3% from last year, with the core index being up 0.3% compared to the month of June.

For most economists covering the news, the CPI still stands at an incredibly high level, even if it seems to have slightly died down a bit over the past month. As long as the Federal Reserve continues to maintain its low interest rate and bond-buying policies, bearish investors are continuing to worry that inflation might be a serious problem in the months to come.

It’s like the equivalent of going from a 104-degree to a 101-degree fever—it’s still elevated. It’s just not as hot as what we saw in the prior three months. There is still some pressure in the pipeline that should show up in the next few months,” said Aneta Markowska, the chief financial economist at Jefferies.

Although not necessarily a direct indicator of inflation, airline companies are reporting a steady decrease in traffic once again. This includes a dip in bookings and a rise in cancellations across the board.

Oil prices are also starting to fall right now. Although that largely has to do with OPEC continuing to increase output, less demand for travel would lead to less demand for oil and a corresponding decrease in prices. For this reason, oil is seen as a proxy for the state of the international economy.

Other bearish factors in the market right now include the growing number of Delta variant cases being reported by the media. Economists predict that economic growth could slow down significantly, although it has yet to be seen whether it will escalate to being anywhere near the same extent of the earlier 2020 pandemic.

GDP growth for the last quarter came in an annualized rate of 6.5%. While that’s impressive, a fast-growing economy also tends to lead to some degree of price increases for consumers. That’s why many economists predicted that inflation was going to be inescapable as the U.S. economy restarted itself.