© Reuters Wall Street getting fooled again? It is still difficult to predict whether the CPI data in October is very good or a policy change of the smoke bomb
News from the Associated Financial Press, November 12 (edited by Ma Lan)Wall Street is having a carnival this week, and US stocks have enjoyed a satisfying rally. But there are also fatal questions: Have the great economic statistics fooled Wall Street again?
After all, this is not the first time that US CPI data has fallen. “We’ve been here before, with inflation showing signs of slowing in July, only to later disappoint,” Josh Jamner, investment strategist at ClearBridge Investments, wrote in a note.
Annual US inflation climbed to a multi-year high of 9.1 percent in June before falling to 8.5 percent in July. Investors were as upbeat then as they are now, only to be battered by stubborn inflation over the next two months.
The Federal Reserve is also cautious about the October CPI data. In its explanation of the direction of interest rate rises, it said that inflation may need to slow further in the next few months before the Fed can be confident in curbing rate rises. interest.
In short, if the drop in CPI in October is just a “flash in the pan”, raising interest rates will still be a nightmare for the market.
The deterioration in the core may be misunderstood. In addition to the conservative Fed, some analysts noted that the core CPI data in the United States in October was better than expected. One of the main changes came of medical insurance, but the decline in the increase in the price of medical insurance does not mean that inflation has improved.
Medical insurance accounts for around 1% of the CPI basket, and the month-on-month growth rate for this item fell sharply from 2.1% to -4% in October. The reason is that the US Department of Labor uses a new gauge for calculations.
According to the industry, the US is now using the retained earnings published by the Insurance Association to reverse consumer spending, and the reserve earnings data updated in October 2022 actually reflects the sharp decline in the retained earnings of the US insurance industry in 2021.
At the time, because the epidemic had slowed down and American residents were no longer afraid to gather in public, they greatly increased their hospital visits, leading to a surge in insurance reimbursement. As a result, health insurance companies’ expenses rebounded, and retained earnings fell sharply.
Therefore, the decline in medical insurance inflation data does not reflect recent or future price changes in the United States, but can be misleading.
As well as health insurance, the cornerstone of inflation, housing data has a similar problem, with the same troublesome lag. Therefore, overconfidence in CPI is likely to lead to a disastrous end for Wall Street.
After demystifying the data, some economists warned that the real reason for inflation is insufficient supply in the market.
Brian Brenberg, a professor at King’s College London, said that inflation can be reduced by a few percentage points by suppressing demand, but to bring inflation down to 2% and return to a truly healthy state, people must maintain the supply side of the United States States run This is the fundamental problem in America.
Wendy Edelberg, a senior fellow at the Brookings Institution, agrees, arguing that high demand for the commodity and various pandemic-related supply issues have contributed to the higher prices.
He also pointed to the fact that businesses have been charging the highest prices the market can bear as a contributing factor to inflation. But Justin Wolfers, another researcher at the Brookings Institution, said that companies are always greedy, and it is impossible to blame companies for this inflation.
In general, a “wolf is coming” story is not uncommon. Whether the CPI data can represent the next phase of the US economy is still too early to draw a conclusion.
