CPI inflation declined to 7.7 percent in October compared to a year ago, down from 8.2 percent in September, the government said Thursday. But it’s not making consumers any happier with the approach of the holidays. The University of Michigan’s survey of consumer sentiment also declined further to 54.7 from 59.9.
Food prices rose 10.9 percent year-over-year. Food at home — grocery store or supermarket purchases — increased by 12.4 percent, ticking down from 13 percent in September, and rose 0.4 percent on the month, the smallest monthly increase in the category since last December, said MarketWatch’s Jeffery Bartash.
But several categories rose far more than the overall rate of inflation. Egg prices rose 43% year-over-year in October, butter increased by 26.7%, and flour and prepared flour mixes were up 24.6%. Lettuce prices rose 17.7% year-over-year, while bread and milk prices rose by 14.8% and 14%, respectively.
Such unpleasant news could continue due to a typical scarcity of these products in winter.
“Declines in sentiment were observed across the distribution of age, education, income, geography, and political affiliation, showing that the recent improvements in sentiment were tentative,” wrote Joanne Hsu, director of the survey, in a statement. “Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election.”
How fast will prices continue to decline that might improve sentiment, regardless of who wins congress? I noted recently that market strategist Jim Paulsen of the Leuthold Group has done research on the history of such inflationary spikes, and they seem to behave similarly, regardless of monetary policies.
CPI inflation generally taken 12 months to return to more normal levels from its high point. Since this inflation spike peaked in March-April 2022 he maintains we should see inflation returning to a normal range of 2-3 percent by next March-April 2023.
And consumer surveys already show consumers becoming more confident about the future with longer-term inflation expectations holding at 3 percent over the next five years.
Thursday’s 1,000 + point surge of the DOW following news of the latest CPI report may have been prompted by Paulsen’s remarks last Tuesday in a recent CNBC interview, when he said that “we may by heading for a new recovery rather than a recession.”
If, that is, we do see inflation continuing to decline into the new year, as Paulsen predicts.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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