Inflation Remains High


Overview: Over the past week, the highly anticipated Personal Consumption Expenditures (PCE) inflation data matched expectations, and the other major economic reports also revealed no significant surprises. As a result, mortgage rates ended the week with little change.

 

The core PCE Price Index is the inflation indicator favored by the Federal Reserve. In August, core PCE was 3.6% higher than a year ago, matching the consensus forecast. This was the same annual rate of increase as last month and the highest annual rate since 1991. By comparison, core PCE was at a 1.5% annual rate of increase in February. While readings of this magnitude during the reopening of the economy have been widely anticipated, there continues to be significant debate on whether higher inflation will be a temporary spike or persist for years.

A couple of other significant economic reports released this week from the Institute of Supply Management (ISM) revealed strong results, as expected. The ISM Service Index rose to 61.9, near a record high, while the ISM Manufacturing Index increased to 61.1. Levels above 50 indicate that the sectors are expanding, and readings above 60 are rare. Despite the impressive results, however, a large number of companies reported difficulties in hiring enough workers to keep up with growing demand or indicated that supply chain disruptions were holding back production. If these restraints are preventing companies from meeting current demand, future readings for these reports may remain strong, as companies gradually attempt to catch up.


Week Ahead

Looking ahead, investors will monitor comments from Fed officials for hints about the timing of future monetary policy changes and will track COVID case counts globally. Beyond that, the Employment Report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The Consumer Price Index (CPI) will come out on October 13. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.

 

Core PCE (annual % change)

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