The Consumer Price Index which measures consumer-based inflation was released last week and it rose by 0.9% for the month of October. This came in a lot higher than expectations of 0.6%. Annually, the CPI increased to 6.2% which is a new record high and much hotter than the expected 5.4%. The Core CPI, which strips out volatile food and energy prices rose by 0.6% and was also much higher than expectations. Annual Core CPI also rose and was released at 4.6% which was an increase from last month’s 4.0%. Some notable increases were in the food, energy and rent categories.
The food category that contains meat, poultry, fish, and eggs increased 11.9%, with the index for beef rising 20.1% and the index for pork rising 14.1%. This is the largest annual increase since the period ending December 1990! The energy index rose 30% over the past twelve months, and this is the largest annual increase since the period ending September 2005! The gasoline portion of the energy index increased by 49.6% over the last year!
Lastly, rents rose 0.4% in October and 2.7% on an annual basis, up from 2.4%. Even though this was an increase, there are many other reports out there showing rents increasing by over 10%. Even though the Fed has been saying that inflation has been “transitory” or temporary, it is hard not to feel it and see it all around us.
Last week the Fed mentioned that they will begin to taper their Quantitative Easing or begin to lower their purchasing of Mortgage-Backed Securities and Treasuries starting at the end of this month. Hopefully this can help slow down inflation, but you may see the Fed also raise the Federal Funds rate to aid with this as inflation continues to increase. Inflation is the arch enemy of bonds and mortgage rates. As inflation rises so does longer term interest rates, so we have to keep an eye on this. It is imperative that you work with a trusted advisor who can help you monitor this and keep you up to date on the market.