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Pre-marketing actions: the “dirty word” at the heart of the great debate on inflation

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The U.S. consumer price index rose 5.4% from a year earlier in September, according to data released Wednesday. Excluding food and energy, which tend to be more volatile, prices rose 4% over the same period.
Inflation has now been at high levels for months, both in the United States and in many other economies. The trend is making central bankers – who are paid to worry about inflation – increasingly nervous.

However, the blows continue to flow.

In China, the producer price index – which measures the cost of goods sold to businesses – climbed 10.7% in September from a year ago, data showed Thursday. This is the fastest increase since 1996, when the government began publishing such data.

More generally, inflation in member countries of the Organization for Economic Co-operation and Development reached 4.3% in August, continuing an upward trend from December 2020.

For months, many economists and central bankers have repeated the mantra that inflation will be ‘transient’. Prices rise due to temporary pandemic factors, they say, and inflation will subside on its own.

Here’s what the Federal Reserve said in its September meeting minutes, released on Wednesday: “Staff’s short-term inflation outlook has been revised up in response to incoming data, but staff have continued. expect this year’s rise in inflation to be transient. “

There is still that word – “transient”. What does it mean? Merriam-Webster tells us that transient means “short-lived” or “temporary”.

Most Americans probably don’t see the best part of the year as a “short-lived,” but “temporary” gives the Fed a little more leeway to continue to describe inflation as transient.

Yet not everyone agrees. Raphael Bostic, chairman of the Atlanta Federal Reserve, has actually banned his staff from using the “dirty word.” If they use it, they have to put a dollar in the cookie jar.

“It is becoming increasingly clear that the feature of this episode which has fueled price pressures – primarily the intense and widespread supply chain disruptions – will not be brief,” he said. in a speech this week.

“Data from several sources indicates that these last longer than most initially thought. By this definition, therefore, forces are not transient,” said Bostic.

Leaving aside the debate over which-should-not-be-used, investors should pay attention to the drivers of inflation, which include rising energy prices, shortages of goods and increases. of wages.

If inflation persists longer than central banks anticipate, they may be forced to raise interest rates aggressively.

“The main risk here is that the shortages will persist longer than expected and prices will rise more substantially,” said Neil Shearing of Capital Economics.

“Central banks are likely to be particularly attentive to what is happening in labor markets,” he said. “If policy is being tightened more aggressively than expected, it is probably because labor shortages have caused a larger and more sustained increase in wage growth.”

Where is the risk most pronounced? The United States, according to Shearing.

SEC will ask for more confessions of wrongdoing

The United States Securities and Exchange Commission is once again trying to get more corporate disbelievers to admit they’ve broken the law.

It may sound like something the best cop on Wall Street should already be doing. But that doesn’t happen very often.

The SEC has traditionally allowed defendants to settle enforcement inquiries without admitting or denying the agency’s charges. The Obama administration tried to change this, but only got a small number of “confessions”.

Now the SEC has another chance.

“In an era of diminished trust, we will, in appropriate circumstances, require admissions in cases where increased liability and acceptance of liability are in the public interest,” said Gurbir Grewal, division director of the SEC enforcement, in a speech Wednesday.

“Admissions, given their attention-grabbing nature, also serve as a call to other market players to root out and report misconduct themselves to the extent that it occurs in their business,” he said. he adds.

Social Security benefits explode

The announcement that Social Security retiree benefits will increase by 5.9% next year – the biggest increase in the cost of living since 1982 – should be good news for many seniors, reports my colleague from CNN Business Jeanne Sahadi.

Besides the pressure of the pandemic, those living on low to moderate incomes have been particularly hard hit by the double blow of rising inflation and low interest rates.

Pre-marketing actions: the “dirty word” at the heart of the great debate on inflation

Seniors found themselves paying more for the essentials, earning next to nothing on their savings and receiving a monthly Social Security check that only increased by an average of $ 20 in 2021.

This small increase was based on the growth in inflation from the third quarter of 2019 to the third quarter of 2020. It therefore did not take into account the peak of inflation induced by the pandemic that occurred this year.

As a result, the next 5.9% increase will help offset this shortfall, as the average Social Security retiree check will increase by $ 92 to about $ 1,657 per month.

Seniors should always be careful about their expenses. Inflation could continue to erode purchasing power next year and health insurance premiums rise.

Following

Gains of Citigroup (VS), Bank of America (BAC), Domino’s Pizza (DMPZF), Morgan stanley (MRS), Wells fargo (WFC), United Health and Walgreens Boots Alliance came out before the opening bell.

Also today :

  • U.S. Producer Price Index for September at 8:30 a.m. ET
  • Unemployment claims in the United States at 8:30 a.m. ET
  • EIA crude oil inventory data released at 11:00 a.m. ET

Coming tomorrow: US retail sales for September will give investors a sense of how consumers will react to the price hike.

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