Inflation continues to be a complicated situation to address, with mixed progress occurring last week, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private credit asset management organization focused on strategic lending.
Economic Snapshot
New data released Friday showed consumer prices in August were 6.2% higher than a year ago; that’s a slight decline from the revised 6.4% increase for July.
The 7% June year-over-year rise, however, was the most pronounced 12-month increase since 1981, according to The Wall Street Journal — which noted although overall inflation seems to have eased slightly during the month, high inflation remains a concern.
The Commerce Department’s personal consumption expenditures price index, excluding food or energy prices, rose 4.9% in August from 2021’s level. Month over month, prices rose slightly — 0.3% — in August; excluding food and energy, the increase was 0.6%.
The Federal Reserve’s monthslong campaign to lower inflation through aggressive rate hikes seems to be affecting some parts of the economy; separate Commerce Department data released last week showed the economy had shrunk during the second quarter at an annual rate of 0.6%, for instance, and mortgage rates have now reached their highest level since 2007.
The labor market, though, remains a conundrum in comparison, according to the Journal, with still-robust hiring, despite gross domestic product falling to a negative level this year. Monthly payrolls have grown by 438,000 on average through August this year — roughly three times their pace in 2019. Last week, initial jobless claims reached their lowest point since April.
Wage increases appear to also be weighing on attempts to lower inflation. While some concern exists surrounding high wages potentially keeping inflation pressures elevated, as the Journal pointed out, the brisk wage gains workers have experienced — including annual pay increases of 8.4% in August for workers who switched jobs, according to the Federal Reserve Bank of Atlanta — ultimately may not last, since the increases are being fueled by tight labor markets.
Recent Market Activity
Although at points during the week, all three major indexes seemed to be turning their luck around, by Thursday, they were again trending downward.
The S&P 500 fell 1.03% on Monday, followed by a 0.2% drop on Tuesday. On Wednesday, the S&P had a 2% rise — its best day in seven weeks, according to the Washington Post — yet on Thursday, it slid 2.1%. On Friday, the index sank 1.5%, based on initial market results for the day.
The Nasdaq composite index shed 0.6% on the first day of the week, then rose 0.25% on Tuesday. The index followed Wednesday’s 2.1% boost with a 2.8% drop on Thursday; by the close of the week, it had declined 1.5%.
The Dow Jones Industrial Average, after dropping 1.11% on Monday, fell 0.43% on Tuesday. The Dow reversed course on Wednesday with a 1.9% rise, but on Thursday slipped 1.5%. On Friday, the index was down 1.7% for the day.
Treasury yields had an uneven week — particularly the benchmark 10-year U.S. Treasury note, which has felt the impact in recent months of economic news releases indicating further inflation uncertainty.
The 10-year U.S. Treasury yield — after briefly hitting above 4%, and then registering its largest single-day decline in two years on Wednesday — rose to 3.7% on Thursday. On Friday, the 10-year yield climbed to 3.814%.
