Weekly SmartPills #28
CPI AND CORE CPI: THE THERMOMETER OF INFLATION IN THE UNITED STATES
The time has come to unveil the U.S. inflation data for October. A crucial update in an economic environment where fighting inflation has become a priority. Price tensions have remained the focus of attention following the Federal Reserve's aggressive actions in raising interest rates. In the global context, the European Central Bank followed with less restrictive policies. This difference in the actions of the two central banks reflects the complex challenges of the current economic situation.
The Consumer Price Index (CPI) is one of the main indicators used to measure inflation. This index reflects the cost of a basket of goods and services typically purchased by U.S. households, including food, transportation, medical care and more. In September, inflation in the United States had reached 5.5 percent, up from a modest 0.25 percent earlier in the year. The European Central Bank has adopted a less restrictive policy with rates around 4.5 percent.
These data pose a significant challenge for the Federal Reserve. While controlling inflation is critical, tightening policy too much could put markets, investment and jobs at risk, leading to economic slowdowns or recessions. On the other hand, keeping rates too low for too long could plunge the country back into inflation, leading to far more serious problems such as stagflation.
Newly released data reveal that although inflation rates fell slightly from expectations, they remain above the Federal Reserve's comfort level. In particular, the Core CPI, which excludes the cost of energy, remained high.
Now, these data will feed into the discussion at the Federal Open Market Committee (FOMC) scheduled for later this month, October 31 and November 1. What they decide on will have a direct impact on future Federal Reserve policies. Although the actual numbers are only slightly higher than expected, the possible increase in interest rates by 25 basis points will remain the focus of attention. The Federal Reserve must be careful not to throttle the economy too much.
Meanwhile, the stock market is reacting positively, with solid performances in Asia and Europe. Cryptocurrencies also maintain a cautious stance, with bitcoin and Ethereum down 2 percent, while some altcoins strengthen. Ultimately, these inflation data reflect the ongoing balance between the need to contain prices and the risk of damaging economic activity.
The Federal Reserve is in a difficult position with its upcoming decision that will have a lasting impact on the economic health of the United States and beyond. Stay tuned for further developments.
What is the CPI?
The Consumer Price Index is a key indicator used to monitor inflation. It represents the change in prices of a basket of goods and services commonly purchased by U.S. households, thus providing an indication of consumer spending and inflationary dynamics. The Core CPI excludes the cost of energy and provides a more accurate picture of inflation trends. Federal Reserve decisions are based in part on this index, especially in times of economic uncertainty.
Conclusion
In conclusion, the focus on inflation in the United States is always high, as price dynamics have a direct impact on everyone's daily lives. The most recent data show a slight decrease compared to expectations, but inflation remains a significant concern, especially when looking at the Core CPI. The Federal Reserve now faces crucial decisions at the upcoming FOMC meeting, seeking the balance between controlling inflation and supporting employment and economic growth.
Markets are reacting positively, but upcoming policies will have a lasting impact on economic performance. We will continue to follow future developments closely as the Federal Reserve's decisions will profoundly affect the global economic environment and everyone's lives. Stay tuned for further updates.