- ORIGINAL NEWS
The ‘supercore’ inflation measure shows Fed may have a real problem on its hands
- SUMMARY
The consumer price index (CPI), a measure of inflation, rose higher than expected last month, raising concerns among economists and policymakers.
Within the CPI report, a specific gauge called “supercore inflation” has received significant attention.
Supercore inflation measures the change in prices for services, excluding food, energy, housing, and autos.
This metric has been rising sharply, reaching an 8% annualized rate over the past three months.
This is far above the Federal Reserve’s target of 2% inflation.
The Fed typically looks at core CPI, which excludes food and energy prices, to gauge the underlying trend in inflation.
However, it considers supercore inflation to be particularly important right now because it excludes the more volatile housing and auto components, which the Fed believes are temporarily pushing up prices.
The elevated supercore inflation suggests that the current inflation problem is more deeply rooted than previously thought.
Instead of being driven by short-term supply chain issues or energy price spikes, the inflation is now spilling over into essential household necessities, such as car and housing insurance and property taxes.
This complicates the Fed’s task of bringing down inflation.
Interest rate hikes, the Fed’s usual tool for combating inflation, may not be as effective in addressing these more persistent drivers of price increases.
If the Fed hikes rates more aggressively, it could raise the cost of borrowing and slow down the economy.
However, if it doesn’t do enough to curb inflation, the economy could overheat, leading to even higher prices and potential economic instability.
Economists are still debating how much of a threat supercore inflation poses to the economy and whether the Fed will need to take further action to bring inflation under control.
The situation remains fluid, and markets will continue to closely monitor supercore inflation data for signs of improvement or further deterioration.
- NEWS SENTIMENT CHECK
- Overall sentiment:
negative
Positive
“Alphabet quietly hits new record in down market, forming bullish ‘cup-and-handle’ chart pattern”
Negative
“The picture is more complicated because some of the most stubborn components of services inflation are household necessities like car and housing insurance as well as property taxes.”
“The Fed will have a hard time bringing down inflation with more rate hikes because the current drivers are stickier and not as sensitive to tighter monetary policy”