Experts predicted that inflation would decline as a result of the decline in oil prices, which moderated the strong impact energy has had on the economy. Not at all. It became worse.
In one sense, it wasn’t by much—the rise was 0.1 percentage points. But given the expectations, it came as enough of a shock for the markets to tremble. As of 10:15 a.m., the S&P 500 was down around 2.6%, the Dow was down 2.3%, and the Nasdaq was down 3.2%, according to S&P Global Market Intelligence.
As this episode of inflation shows to be anything but “transitory,” Cliff Hodge, chief investment officer at Cornerstone Wealth, said in a statement sent by email, “Misses on both the headline and core are disappointing.”
There are two things it means for CRE. First, it is unlikely that the Federal Reserve will stop raising interest rates. Consider that in its scheduled meeting next week, a minimum 75-basis point increase is a given. It’s possible that it would increase by a full percentage point in response to the shift, which would result in significantly higher financing costs for all real estate projects. If you previously borrowed at significantly lower rates and are getting ready to refinance, this is bad news for you.
According to Charlie Ripley, senior investment strategist at Allianz Investment Management, core inflation, which excludes food and energy, increased “twice as quickly” as predicted by experts, reaching 6.3%. Market investors are starting to realize that the Fed’s current level of tightening is insufficient to slow the economy and lower inflation, according to Ripley. The Bureau of Labor Statistics emphasizes the second aspect of the impact, which is more indirect and has to do with the specifics of inflation.Since the beginning of the year, the main causes of inflation have been energy and related commodities. The biggest declines are now visible, but inflation is still rising. Even still, the annual increase in energy is still 23.8%. Hodge stated that “price hikes were prevalent,” with more than 70% of the CPI basket increasing by at least 4% annually.
Monthly growth in food was 0.8%. Even though it’s the slowest expansion since February, the unadjusted 12-month growth rate of 11.4 percent is still impressive.
Rent and similar housing costs for homeowners increased by 6.2% annually and 0.7% month-over-month. The core services sector continues to see housing prices lead the way, rising 0.7%, the fastest monthly gain since January 1991, according to Oxford Economics.
Transportation increased by 0.5% from July to August and has increased by 11.3% annually.
Consumer confidence will undoubtedly decline as they experience a tighter strain on necessities, which will also affect their capacity to spend money on other things. The pressure on retail and hospitality might possibly increase, posing a bigger risk to owners and operators from tenants. Casual travel and hospitality could suffer as a result. Because forcing people back into the office would increase costs for the employees, the office, which is already under pressure, might discover that tenants don’t feel they can do it as easily.
Overall, there is no positive news.
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