In back-to-back months, the United States realized wondrous inflation. Not only did inflation reach a 30-year high in October, it did so again immediately after in November.
Meanwhile, investor concerns about the negative impact of the omicron variant on economic growth eased modestly this week. Overall, this news displayed positively for stocks. On the other hand, it reflected unfavorably for mortgage rates.
With the latest inflation data coming in on target, the investing community demonstrated little reaction. In conclusion, mortgage rates ended the week a little higher.
Consumer Price Index Indicates Wondrous Inflation
Analysts closely watch the Consumer Price Index (CPI). CPI indicates inflation, looking at price changes for a broad range of goods and services. Core CPI excludes the volatile food and energy components. Additionally, Core CPI provides a clearer picture of the longer-term trend.
In November 2021, Core CPI increased 4.9% higher than a year ago. Not only did Core CPI rise from an annual rate of increase of 4.6% last month, it also reached its highest level since 1991. Thus, the pandemic’s wondrous inflation once again achieved a 30-year high.
Causes for the Wondrous Inflation
There are many reasons why the U.S. continues to see “wondrous inflation”. The annual core inflation rate jumped from the readings below 2.0% seen earlier in the year. some of the factors contributing to the core inflation rate include:
- Tight labor market
- Strong consumer demand for goods
- Rising energy prices
- Supply chain disruptions
Shortages for many items caused enormous cost increases. Some of these shortages are seen in the auto sector, primarily with items such as used cars. Used car prices soared 31% higher than a year ago.
Fed officials and economists debate the long-term inflation outlook. Some believe it’s due to pandemic-induced temporary factors. Others consider it to be more structural in nature. Incoming data tiled the argument more towards the latter case. As a result, investors pulled forward the expected timeline for Fed rate hikes. They anticipate that the first rate hike to take place around May 2022.
JOLTS Report Indicates Very Tight Labor Market
Aside from the recent wondrous inflation, the JOLTS report measures job openings and labor turnover rates. Furthermore, the latest data indicated that the labor market remains very tight. At the end of October 2021, the U.S. job market held a massive 11 million job openings, close to the recent record high. Also, job openings expanded by about 4 million more than in January 2020 prior to the pandemic.
A high level of job openings reflects a strong labor market. Currently, companies struggle to hire enough workers with the necessary skills. A very large number of employees also willingly left their jobs in October. Analysts view this as a sign of labor market strength, since people usually quit only if they expect that they can find better jobs.
The Department of Labor releases the total number of new claims for unemployment insurance each week. The latest reading only hit 184,000. Therefore, unemployment insurance claims fell to their lowest level since 1969. and down from elevated figures in the millions seen last spring during the partial shutdown of the economy.
Looking ahead after the wondrous inflation, investors closely follow news on the Omicron variant. Beyond that, the next Fed meeting takes place on December 15th. Investors search for additional guidance on the pace for tapering bond purchases and the timing for future rate hikes.
Retail Sales releases on Wednesday. Since consumer spending accounts for over two-thirds of U.S. economic activity, the retail sales data indicates growth. Housing Starts comes out on Thursday. The next European Central Bank meeting also takes place on Thursday.
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