Moderate But Manageable Inflation

Economic Blog
November 13, 2019

Consumer inflation continued at a moderate, but manageable, pace in October.

As shown in the LPL Chart of the Day, the core Consumer Price Index (CPI), which excludes food and energy prices, rose 2.3% year over year in October. That’s slightly lower than September’s 2.4% year-over-year growth, which was the fastest pace of the economic cycle.

Core CPI tapered off last month, but inflationary pressures have recovered noticeably since slowing earlier this year. Core CPI has increased at least 2.3% year over year for the past three months, the first time that’s happened since May 2012.

moderate-but-manageable_1

Modestly rising inflation is a healthy trend in this macroeconomic environment, as domestic inflation remains just below the Federal Reserve’s (Fed) expectations. Core Personal Consumption Expenditures (PCE) rose 1.7% year over year in September, below the Fed’s 2% target for the gauge. While core CPI is an important indicator of inflation, core PCE tracks prices for a different (and more flexible) set of goods, and core PCE has historically increased at a slower rate than core CPI.

“Consumer inflationary pressures have picked up, but inflation is still below the Fed’s expectations,” said LPL Financial Senior Market Strategist Ryan Detrick. “We believe full employment, rising wages, and low interest rates will continue to help sustain manageable inflation growth near the Fed’s target.”

Of course, if inflationary pressures rise too quickly, it could signal that the economy is at risk of overheating. We haven’t seen any signs of excessive inflation at this point, though. Wages have grown in step with pricing pressures, and consumer spending remains solid.

Going forward, the Fed will be looking for core PCE growth to move closer to 2% amid a pause in interest rate cuts. On October 30, Fed Chair Jerome Powell said policymakers would need to see “a really significant move up in inflation that’s persistent” before considering tightening policy again.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC).  Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.

If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by Any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA /SIPC

For Public Use | Tracking #1-916530