Judy: The August inflation
report is out and the upshot is,
gas prices have dropped but the
bottom line is worse than
expected.
The U.S. Labor department says
consumer prices rose 8.3% from
one year ago.
The rate of increase for core
items not counting full and --
fuel and food surged more than
6%.
That was sharply higher than
July.
The report triggered wall
Street's worst day since June of
2020, amid fears of more
interest rate hikes.
The Dow Jones lost 1276 points
to close below 31,105, down 4%.
The NASDAQ fell 5%.
The S&P 500 was down 4.3%.
To help us understand I am
joined by an economist, the
founder of her own firm and a
former economist for the fed.
Welcome back to the newshour.
We see gas prices coming down,
other hands that demand may be
slowing, why is inflation
persistent?
>> We had hoped for better from
this report.
We saw the relief on gas prices
and a broad range of other goods
and services, those prices kept
rising.
That came limited improving
supply chains, commodity costs
declining.
All of that led us to hope more
of that relief would be passed
on to the consumer.
We have not seen that.
We have not seen areas like new
cars and furniture where prices
continue to rise despite
moderating demand, improved
production and supply chain
operations.
So far, the relief we are seeing
at the wholesale level is not
being passed are long.
Judy: You said that twice, not
passed on to consumers.
Why isn't it?
>> We're going to be in a
tug-of-war, companies that sell
goods the consumers bought in
scale during the pandemic
because they were in lockdown,
those companies enjoyed healthy,
strong profit margins.
They are trying to hold on to
those profit margins and not
accept now or margins, so it's
going to be up to competitive
pressures in markets like cars,
furniture's for consumers to
express sentiments with their
wallets.
For bargaining, relief, it's
going to be a process that will
player probably over a number of
months.
Judy: A lot of this, much of
this is at the discretion for
these big companies?
>> This is an inflection point
in the economy.
We are seeing consumers, demand
slow, consumer spending has
slowed down quite a bit from the
soaring numbers of last year.
Car sales have been quite weak.
There is a decision that car
dealers need to make if you want
to sell fewer cars at higher
prices, or more cars at more
competitive prices.
So far, the dam has not broken
in the consumer's favor.
At some point there will be
enough inventory on hand.
It's interesting because we have
been hearing through company
reports that some major
retailers have been talking
about rising inventory levels
and the need to discount.
It's not showing up in the data
in any decisive way.
Judy: We have been expecting the
federal reserve to raise
interest rates next week another
three quarters of a percent.
How is all of this likely to
affect their thinking?
>> It certainly solidifies the
jumbo 75 basis point rate hike
next week.
That is a done deal.
It raises the likelihood that
more jumbo rate hikes lie ahead.
The market reacted so strongly
because we had had a string of
data that pointed to more of the
soft landing scenario.
The July inflation report had
been quite hopeful, labor market
data has been resilient.
That data spoke to maybe the
U.S. Economy will make it
through the rate hiking cycle
without going into a recession.
This report is a vote on the
hard landing side.
It suggests the fed will be
raising rates until we see
broader based relief on the
inflation front.
Judy: In a quick nutshell, the
health of the overall U.S.
Economy?
>> We are still growing.
The labor market has been strong
area the unemployment rate
remains well below 40 sent.
That's a low unemployment rate.
Consumers are feeling better
from that relief.
Overall, we are muddling along,
not tipping into a recession yet
area the risk of that kind of
scenario for next year, that's
what the market is seeing.
The risk of the scenario rising
if inflation does not cool off.
Judy: Thank you very much.