Why This Week's Inflation Reports Are So Important Dear Reader, With Thanksgiving a little less than two weeks away, I am sure many of you are preparing for the upcoming gatherings. And one of the most time-honored traditions for the holiday is turkey at your feast. This year, the average 15-pound turkey will cost you about $31, according to FinanceBuzz. That comes to about $2.08 per pound. That’s also down about 12% from last year and 11% from 2022.  After years of just about everything going up, at least that’s something to be thankful for. But it begs the question, are prices going down across the board? Or are the increases at least moderating? Luckily, we had some fresh inflation reports this week to give us clues. On Wednesday morning, we got a look at the latest Consumer Price Index (CPI) report. Yesterday, we got an updated Producer Price Index (PPI) report. Then this morning, the newest U.S. retail sales report was released. So, in today’s Market 360, let’s dive into the details of these reports. Then, I’ll explain why this data is so important for the Federal Reserve’s upcoming rate cut decision in December. I’ll also share how you can profit during the uncertainty moving forward. Consumer Price Index (CPI) The Bureau of Labor Statistics announced Wednesday morning that the CPI rose 0.2% in October and 2.6% in the past 12 months. This was a slight uptick from the 2.4% annual gain in September but both were in line with economists’ expectations. Core CPI, which excludes food and energy, increased 0.3% for the month and 3.3% in the past 12 months. Both remained unchanged from September and matched economists’ expectations. I should also note that core CPI has held steady at 3.3% for the past three months.  I was most disappointed that Owners’ Equivalent Rent (OER) was up 0.4% in October. It rose only 0.2% in September. Over the past 12 months, shelter costs have surged by 4.9%. They accounted for over 50% of October’s inflation increase, and they’ve been the primary reason why CPI has remained above 2% for some time now. Now, I should also note that food prices increased 0.2%. But I see two probable causes as to why this happened… First, there’s a problem with butter because Costco Wholesale Corporation (COST) recalled 80,000 pounds of butter after a labeling snafu with the FDA. So, that’s a little glitch in the food supply chain. The other glitch is there is a bird flu outbreak that started in Washington State, which is likely affecting the price of chickens and eggs. Producer Price Index (PPI) The PPI showed wholesale inflation was up slightly last month. The index, which measures the prices that producers get for their goods and services, rose 0.2% in October and 2.4% in the past 12 months. That was in line with what economists were expecting, and it compares to September’s 0.1% rise and 1.9% year-over-year increase. Core PPI, which excludes food, energy and trade, rose 0.3% in October and 3.1% in the past 12 months. That was in line with expectations and compares to a 0.2% monthly increase in September and an annual rate of 3.1%. Looking deeper into the numbers, services prices rose 0.3% and final demand goods increased 0.1%, following two months of decreases. Transportation and warehousing costs increased 0.5%, and trade services were up 0.1%. There was some good news, though – wholesale food prices declined 0.2%, while energy fell 0.3%. The troubling sign here is the fact that wholesale inflation seems to be accelerating. In November 2023, the annual pace was 0.8%. And this latest reading was 2.4%. This matters because PPI is a leading indicator of potential future inflation at the consumer level. So, more consumer inflation could be brewing under the surface. October Retail Sales Report Retail sales rose 0.4% in October, which bested economists’ consensus estimate of a 0.3% increase. In the past 12 months, retail sales have risen 2.8% – but this isn’t too impressive to me because that is barely ahead of inflation. Excluding vehicles and gas, retail sales only rose 0.1% in October. On the bright side, eight of the 13 categories in the report notched gains. Looking a little closer at the details… - Electronics and appliance stores jumped 2.3%
- Car and car part stores increased 1.6%
- Spending at bars and restaurants rose 0.7%
- Miscellaneous store retailers decreased 1.6%
But the biggest news in the report today was that the September retail sales were revised up to a 0.8% increase, up from 0.4% previously reported. So, while October’s numbers might seem unimpressive, the strong revision to September’s numbers could cause some economists to revise their third-quarter gross domestic product (GDP) estimates higher. Why These Reports Matter Right Now As a result of these reports, folks are beginning to question the likelihood of another 0.25% rate cut in December. The CME FedWatch Tool showed a more than 80% probability for a rate cut a month ago, but that has since declined to about 61%. Personally, I don’t think a December rate cut is a forgone conclusion just yet. Remember, Treasury yields soared in the wake of Donald Trump’s election win last week. The 10-year Treasury yield jumped as high as 4.44%. That’s up from 3.62% in mid-September. Interest rates have tapered off a bit this week, but they remain elevated. The Fed never fights market rates. So, when rates were declining earlier this year, the Fed stated it would cut its key rate up to 1% this year and 0.75% next year. However, rates rebounded and erased their earlier decline, which could impact the Fed’s forecast for rate cuts in the upcoming months. Now, Fed Chair Jerome Powell stated in his press conference last week that Fed policy was “still restrictive,” and that the Fed would move to a more “neutral” level. This implies that the Fed could still cut key interest rates at least one more time. But he reiterated in remarks on Thursday that the Fed is not “in any hurry” to lower rates. So, we just don’t know whether that will come in December or later in 2025. How to Profit During These Times In the meantime, we remain in a very positive environment for stocks, with not only an accommodative central bank but also Trump 2.0 set to stimulate economic growth and strong quarterly earnings. We are also entering a seasonally strong time of year. The markets tend to rally going into Thanksgiving, and the good mood typically carries on into December. That means that right now is a great time to fine-tune your portfolio. And my income-generating system, Quantum Cash, can help identify the best stocks to help you do just that... If you want consistent payouts you can count on no matter what broader markets do… Quantum Cash works in any market. Bull, bear, sideways… it doesn’t matter. So, if you’re feeling a little behind in your retirement savings and want to build a second income stream (even if you have a smaller portfolio)... Set aside a little time to watch my critical broadcast, here. Sincerely, | .png)
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