From Temporary to Established — Inflation and Expectations

Language is important in the investment world. So is the data.

Investors will measure each other on Friday of the week prior to the announcement of consumer inflation in November.

For months, the official view of the Federal Reserve on rising prices was that they were “temporary.” The message “This also passes” was designed to alleviate the investment market concerns that the wider economy is buying sharply higher prices. When Federal Reserve Chair Jerome Powell characterized inflation above desirable as “temporary,” it was interpreted as meaning temporary.

But just as spring leads to summer and summer falls, prices have been rising for months and there are few signs of chilling. One of the largest importers in South Florida has told us that furniture shipping from Southeast Asia has more than doubled. A toy importer shared that his shipping costs from China had quintupled during the summer as he was hoarding for vacation. It helps to feed stronger inflation, as some of those costs are passed on.

When he made two appearances at Capitol Hill last week, Powell stopped describing inflation as temporary in his remarks. “I think it’s probably a good time to retire from that word,” he said.

He acknowledged the growing threat of continued inflation, despite believing that price movements would ease in the second half of next year. He promised that the central bank would work to “prevent higher inflation from taking hold.”

The change represents more than a rhetorical change. This is clear from the data. Prices for all kinds of items such as bacon, suits and tires continue to rise. And that’s the Fed’s real concern, admitting that consumers expect prices to continue to rise.

Investors are tired of waiting for price movements to ease and are wary of inflation penetrating the economy.

The announcement of consumer inflation on Friday in November will be of great interest to Wall Street.

Financial journalist Tom Hudson hosts the “Sunshine Economy” at WLRN-FM in Miami and is Vice President of News. He is a former co-anchor and editor-in-chief of the Nightly Business Report on public television. Follow him on Twitter @ HudsonsView.

From Temporary to Established — Inflation and Expectations

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