Pollack: Inflation ramps up

The Monday Morning Quarterback
A quick analysis of important economic data released over the last week

By Elliot D. Pollack & Co. | Rose Law Group Reporter

The latest reading of inflation at 6.2% puts us in territory not seen in three decades and is at the forefront of the minds of consumers, businesses, and economic experts. It has caused the Blue Chip panel of forecasters to moderate their expectations once again for GDP both this year and next. Consumer sentiment is also at the lowest level in a decade with inflation concerns as the main culprit. While consumers generally are in excellent shape with lower levels of debt and higher savings, inflation has eroded gains in household wages. Most are still blaming supply chain issues and pointing to the second half of 2022 before it subsides, so we still have quite a way to go before we should expect any relief in price increases. The new federal infrastructure act will also fuel more demand for construction materials.

In Arizona, retail sales continued to grow month over month and year over year. Greater Tucson also reported additional resale home inventory and a decline in total sales compared to a month ago and a year ago.

U.S. Snapshot:

  • The consumer price index had its biggest increase since 1990. The all-items index grew by 0.9% for the month and 6.2% from a year ago. While core inflation takes out the more volatile parts (food and energy), it saw the largest annual increase (4.6%) in over 30 years, as well. The Fed expects inflation to begin moving downward in the second or third quarter of next year. Currently, inflation is increasing primarily due to supply chain issues. The Fed has remained patient in an effort not to overreact and cool the economy prior to the supply chain issues being fixed over the next year. The next few months will continue to be crucial as the Fed continues to carefully observe the jobs report and the increase in wages. A rapid increase in wages tends to fuel a more traditional inflationary cycle. If that continues, the Fed will be forced to act before it had planned or in a more aggressive fashion.
  • The Blue Chip panel’s GDP forecast declined again in November. The GDP growth rate for 2021 declined from 5.7% to 5.5% and from 4.1% to 4.0% in 2022. The main concern was inflation. The panel forecasted annual growth of the Consumer Price Index to be 5.9% for Q4 2021 and 5.7%, 4.2%, 3.1% and 2.5% for the following respective quarters in 2022.
  • The number of job openings remained high at 10.4 million after declining for the second consecutive month and is down from the peak level of 11.1 million in July. The number of separations continued to increase in September, led by the number of people quitting their job rather than being laid off. The number of quits reached 4.4 million, an all-time high, increasing by 164,000 from the previous high of 4.27 million in August.
  • The University of Michigan Consumer Sentiment Index dropped to the lowest level in a decade. Despite increases in income, half of all families believe they will be making less due to the high inflation being experienced.

Arizona Snapshot:

  • Taxable retail sales were up in Arizona and Maricopa County. Arizona saw an increase of 3.1% and 3.5% in Maricopa for the month. For the year, taxable retail sales were up 16.1% in Arizona and 17.2% in Maricopa.
  • According to the Tucson Association of Realtors, the inventory of homes increased 0.6% in October. The number of sales declined 9.4% from September and 20.8% from a year ago.
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November 2021