Inflation Cooling

Calculator on desk with Inflation Report

Global markets were down this past week as tightening financial conditions undermined stocks early in the week as interest rates, the US dollar, and commodities all rose. However, markets stabilized late in the week, buoyed by improved inflation readings in the United States and the euro zone. The yield on the US 10-year Treasury note surged as high as 4.68% early Thursday before easing to around 4.55% midday Friday. The price of a barrel of West Texas Intermediate crude oil brushed $95 on Thursday before easing to $91.75, a gain of about $1.25 on the week. Volatility, as measured by the Cboe Volatility Index (VIX), reached 18.8 on Thursday before settling down around 16.4, falling slightly from levels seen a week ago. 



Our country’s economic growth was stuck in neutral in July as the manufacturing sector pulled back for a second consecutive month. Real domestic product was unchanged for the first month of the third quarter, following a 0.2 percent decline in June.  

Our population is set to jump 2.7 percent this year. The only other time the country came close to that type of population surge was back in 1971, when it rose 2.2 percent. Population growth is expected to outpace job gains in the coming months, with the unemployment rate expected to hit 5.9 per cent early next year. A pullback in hiring would drive unemployment and slow down consumer spending. Reports suggest consumer spending this year will grow by two percent but slow to a pace of 1.2 percent in 2024. 



The core personal consumption expenditures price index rose a smaller-than-expected 0.1% in August—the smallest monthly rise since November 2020—and gained 3.9% from the year before, the smallest gain since June 2021 and down from an upwardly revised 4.3% in July. The closely watched core services ex housing measure rose only 0.14% in August, a tamer reading than the uptick seen the month prior. Continued inflation moderation would allow the Fed to remain on the monetary sidelines. 

The US economy grew 2.1% in the second quarter, according to revised data released Thursday. While the top line did not change, the contribution from consumer spending was revised downward while the contribution from increasing inventories was revised higher. 

The US Energy Information Agency reports that stockpiles of crude oil at a key storage hub in Cushing, Oklahoma dropped to their lowest level in more than a year and fell close to historic lows. 

This is actually good news from an inflation standpoint as the US consumer has, until now, continued to spend savings accumulated during the pandemic. The Federal Reserve Bank of San Francisco estimates that the bottom 80% of wage earners have exhausted their cash savings and now have less in savings than they did before the pandemic. 



The 4.3% rise in euro zone year-over-year inflation in September was the smallest since October 2021. Core inflation slipped to 4.5%, down from 5.3% in August. The European Central Bank indicated at its meeting earlier this month that the tightening cycle has likely reached its peak, and these data help buttress that view. 



China’s central bank said on Wednesday it would step up policy adjustments and implement monetary policy in a “precise and forceful” manner to support an economy whose recovery, it said, was improving with “increasing momentum.” The People’s Bank of China will keep liquidity reasonably ample and maintain stable credit expansion, it said in a statement after a quarterly meeting of its monetary policy committee. China’s property sector woes intensified this week as embattled developer Evergrande was forced to halt the restructuring of some of its debt because regulators have prohibited the company from issuing notes while it is under investigation. The MSCI China Real Estate Index fell 6.75% in September. 

The yield on the 10-year Japanese government bond reached its highest level in a decade this week, at 0.77%. The backup in yields prompted the Bank of Japan to announce an unscheduled bond-buying operation to slow the advance. 

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