Morning Report: Wholesale inflation rises

Posted on September 14, 2023 by Brent Nyitray

Vital Statistics:

Stocks are higher this morning after the European Central Bank hiked rates by 25 basis points and crude oil rose above $90 a barrel. Bonds and MBS are flat.

The European Central Bank raised its key interest rate by 25 basis points to 4%. It also signaled that it has wrapped up its tightening cycle: “Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,” the ECB said in a statement.

Inflation in the Eurozone is 5%, which is much higher than the US. where PCE inflation is around 3.3%. Both the US and the ECB have a 2% inflation target. The Fed Funds futures continue to predict no changes at the September meeting next week and about a 40% chance of one more hike this year.

Inflation at the wholesale level rose 0.7% on a month-over-month basis, driven by higher energy prices. Gasoline accounted for about 60% of the increase. On a year-over-year basis, inflation at the wholesale level rose 1.6%. If you strip out food and energy, wholesale inflation rose 0.2% MOM and 2.2% YOY.

Retail Sales rose 0.6% in August, according to the Census Bureau. This was up 2.5% on a year-over-year basis. July’s numbers were revised downward from 1.0% to 0.7% (downward revisions seem to be a theme these days). These numbers are not adjusted for price changes, so it seems that consumer spending is waning as higher interest rates bite. The resumption of student loan payments isn’t going to help either.

The United Auto Workers will go on strike at 11:59 pm tonight if there is no agreement with the automakers. The UAW wants a 46% increase in hourly pay and a 4-day workweek (with pay for 5 days). Ford has offered 20%, while GM is offering 18%. The two sides remain pretty far apart. UAW President Shawn Fain said there would be “strategic strikes” which implies it won’t be a full-out strike against the automakers.

Regardless, in the short term a strike will be a damper for economic growth, however if the automakers accede to the UAW’s demands it will be bad news for inflation going forward as it will help cement the wage-price spiral.

Median household income fell 2.3% to $74,580 in 2022, according to the Census Bureau. This was driven by a 7.8% increase in the cost of living, which was the highest since 1981. The Census Bureau used a new inflation index as well, so past numbers might not be comparable.

The median house price to median income ratio sits at around 5.6x, which is an elevated number given how high mortgage rates are.

Filed under: Economy |

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4 Responses

  1. jnc4p's avatar
    jnc4p, on September 14, 2023 at 10:10 am said:

    How ironic:

    “Democratic Governor’s Ban on Carrying Guns in Public Is an Utter Disaster
    By Mark Joseph Stern
    Sept 13, 2023
    …
    The federal law here is equally clear. In 2022, the Supreme Court established a right to “carry handguns publicly for their self-defense.” While the exact scope of the decision remains contested, Lujan Grisham’s sweeping order surely exceeds it. That’s why officeholders across the political spectrum have refused to enforce or defend it—including state Attorney General Raúl Torrez, Albuquerque Mayor Tim Keller, and Bernalillo County Sheriff John Allen. All three men are Democrats, and at least one Democratic state senator has expressed staunch opposition, as well.

    There is, in fact, a very rational reason for law enforcement leaders like Allen to reject the ban: Officers who attempt to enforce it are at serious risk of civil liability. That’s because, two years ago, the New Mexico Legislature abolished qualified immunity, a doctrine that shields officers from suit under all but the most egregious circumstances. (The law was signed by Lujan Grisham.) That means a law enforcement officer who violates a person’s rights under the New Mexico Constitution may not claim immunity when they are sued; they cannot escape liability by claiming that they acted reasonably, or merely followed orders that they assumed to be lawful. Officers who enforce Lujan Grisham’s ban will therefore open themselves to civil liability in New Mexico court. And without the shield of qualified immunity, they could be on the hook for millions of dollars in damages.”

    https://slate.com/news-and-politics/2023/09/democrat-lujan-grisham-new-mexico-gun-ban.html

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    • Brent Nyitray's avatar
      Brent Nyitray, on September 14, 2023 at 10:40 am said:

      It won’t stop there. Republicans will likely try to link Lujan Grisham’s order to the president and other Democratic politicians, smearing them by association—as if they, too, harbor a secret desire to seize “your guns.” To the GOP, the New Mexico episode looks like proof that their darkest, most paranoid fears about Democratic gun-grabbing really are just one election away from becoming reality. It also seems to vindicate conservative fears during the pandemic that governors could exploit public health laws as a pretense to suppress civil liberties through unilateral lawmaking.

      The only thing standing in the way of Utopia is an armed citizenry. Of course they want to abolish the 2A via administrative fiat.

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  2. jnc4p's avatar
    jnc4p, on September 14, 2023 at 10:24 am said:

    Interesting concept, illegal but still authorized:

    “Judge declares Biden version of DACA illegal

    The ruling keeps the program intact for now for hundreds of thousands of undocumented immigrants who arrived in the U.S. as children.

    By Myah Ward and Josh Gerstein
    09/13/2023 07:16 PM EDT
    Updated: 09/13/2023 11:38 PM EDT

    A federal judge in Texas on Wednesday again ruled that the Deferred Action for Childhood Arrivals program is illegal, but kept it intact for now for hundreds of thousands of undocumented immigrants who arrived in the U.S. as children.

    After the Biden administration moved last year to finalize a rule to codify the Obama-era DACA policy into a federal regulation, a group of Republican-led states challenged the effort and asked Texas-based U.S. District Judge Andrew Hanen to shut down the program in its entirety over two years.

    As expected, Hanen on Wednesday ruled the Biden administration’s effort unlawful, but refrained from terminating the program and maintained the status quo for current DACA recipients.”

    https://www.politico.com/news/2023/09/13/judge-biden-version-of-daca-illegal-00115816

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