U.S. markets closed
  • S&P 500

    3,901.36
    +0.57 (+0.01%)
     
  • Dow 30

    31,261.90
    +8.80 (+0.03%)
     
  • Nasdaq

    11,354.62
    -33.88 (-0.30%)
     
  • Russell 2000

    1,773.27
    -2.95 (-0.17%)
     
  • Crude Oil

    110.28
    +0.39 (+0.35%)
     
  • Gold

    1,845.10
    +3.90 (+0.21%)
     
  • Silver

    21.76
    -0.14 (-0.65%)
     
  • EUR/USD

    1.0562
    -0.0026 (-0.24%)
     
  • 10-Yr Bond

    2.7870
    -0.0680 (-2.38%)
     
  • GBP/USD

    1.2495
    +0.0020 (+0.16%)
     
  • USD/JPY

    127.8500
    +0.0560 (+0.04%)
     
  • BTC-USD

    30,049.89
    +573.29 (+1.94%)
     
  • CMC Crypto 200

    650.34
    -23.03 (-3.42%)
     
  • FTSE 100

    7,389.98
    +87.24 (+1.19%)
     
  • Nikkei 225

    26,739.03
    +336.23 (+1.27%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

U.S. inflation rises 5.8% in 2021, hits 39-year high

In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Yahoo Finance's Julie Hyman and Brian Sozzi break report on the latest core PCE price index data, which showed inflation reaching a 39-year high in 2021 and slowing personal income growth.

Video Transcript

JULIE HYMAN: Well, we got to start this morning, Sozz, with that economic data, really interesting stuff here. And again, PCE is important, but the Employment Cost Index getting a lot of attention because there's so much focus right now on wage growth and what that is going to mean for overall inflation. So the ECI coming in at a 1% increase in the fourth quarter. The estimate was for 1.2%. So that seemingly being seen by investors and economists as perhaps a little bit of good news. The prior read, by the way, was 1.3%, so a slowdown in those gains.

And then let's talk about that PCE, the deflator, the core deflator coming in at 4.9% year-over-year. That is a little bit hotter than estimated month-over-month, half a percent gain. Why do we talk about this one so much? It's the one that the Federal Reserve has told us they are watching most closely?

A couple of other numbers to highlight, and one of them is disappointing. And it's personal spending. It was down 6/10 of 1% in the month. That is from a revised 4/10 of a percent gain the prior month. So it was a downward revision in the prior month.

It's bang in line with estimates, but still continues to be interesting here that we see rising wages and not necessarily rising spending. So personal incomes, by the way, up 3/10 of 1% So I think I ran through all of it there. Sozz, what stands out to you in terms of what we need? I mean, that's a lot to digest, obviously.

BRIAN SOZZI: You did good.

JULIE HYMAN: I see you the--

BRIAN SOZZI: You did good. I'm proud of you.

JULIE HYMAN: I see the gears moving. I see the gears moving right now.

BRIAN SOZZI: Yeah, the smoke is probably coming out of my ears, correct. Look, every time I read this report and we get this report, I always think of the person on the other side of this screen, who is on our platform right now. These are a lot of confusing numbers, a lot of things that are great for economist models.

And I think a lot of people, wonder does a report like this mean to my money? So I'm going to tell them right now. If you dig down deeper into this report, you see private sector wages, salaries up 5%, benefits up 2.9%. So that brings the total benefits cost higher by 4.4% year-over-year.

Bottom line, this report is yet another inflationary read that only will fuel, I think, the narrative on the Street. And we'll talk about this Bank of America note we just got here, calling for more rate hikes. But still, just this feeds the narrative that we've been seeing in the markets this week, higher inflation, here comes the interest rate hikes. And those high-momentum, those highly-valued tech stocks or other names like it, those momentum names, may still have a tough time here in the near term.

JULIE HYMAN: I think that's all fair to say. I would also say this report, though, is not hotter than expected. So those who think the Fed is behind the ball here, this doesn't alarm them, so to speak, right, because some of these numbers not looking as hot as expected. Let's talk about that Bank of America report for a moment, shall we, because the report that you were referring comes to us from Ethan Harris, the global economist over at Bank of America Securities. And in it, he is calling for a potential seven increases this year from the Federal Reserve, 25 basis points each. And he says a peak funds rate of 2.75% to 3%.

He says this should affect the economy with a lag, weighing on 2023 growth. And that's really the fear here by some in the markets, is that as the Fed is increasing rates, it's going to choke off growth in the economy. Now, growth right now, the Bulls will tell you, is robust enough to withstand it.

BRIAN SOZZI: They always tell you that.

JULIE HYMAN: Well, I only think we're-- I don't think we know at this point what's going to happen.

BRIAN SOZZI: It is. It's fascinating, Julie, to watch strategists on the Street. They are now essentially all tripping over themselves to predict more rate hikes. Yesterday we saw Deutsche Bank, Matthew Luzzetti, one of the top minds on the Street when it comes to the Fed, he lifted his rate hike expectations for this year to five.

And now coming into the year, most strategists on the street we're looking for about three hikes. The most aggressive call coming into the year I would argue is Goldman Sachs. I believe there were four rate hikes. So seven rate hikes.

And also, let's keep in mind, look at what Ethan Harris also did. With those increased expectations for rate hikes, he also cut his GDP estimate for this year. So he's looking for GDP this year to be 3.6%, down from a prior estimate of 4% here. To me, that read is higher interest rates. Growth is slowing, perhaps justifies all this volatility we're seeing in the markets here.

JULIE HYMAN: And I admit, when JPMorgan's Jamie Dimon was asked about rate hikes this year, he said yeah, there's going to be seven or eight rate hikes. I laughed. I laughed. I'll admit it.

BRIAN SOZZI: We all did.

JULIE HYMAN: I thought that seemed like a wacky prediction. Maybe it's still a wacky prediction. I don't know. Again, as you know, I don't make predictions. I just criticize other people's predictions--

BRIAN SOZZI: Well, now we know why Jamie Dimon--

JULIE HYMAN: --which is an easy place to sit.

BRIAN SOZZI: --has been in this role for like a gazillion years.

JULIE HYMAN: Yeah. Yeah. So in any case, this data that we got today I don't think in and of itself significantly moves the needle one way or another on what the Fed is going to do. And maybe to some extent, that was reassuring in equity markets, because we did see futures come back a little bit after this report came out. Maybe that's the most benign reading on this.

BRIAN SOZZI: I'll just say, let me just add real quickly, too, when you see Bank of America come out with a report like this, this report, they get used by the company's trading desk. It gets shared around on Wall Street. And now suddenly you could see a large-- you could see a fresh move or waves in many markets, as perhaps traders sell positions on the expectations of seven rate hikes. That wasn't in anybody's cards coming into this week, I would argue.

JULIE HYMAN: Yeah, except Jamie Dimon, I guess. I don't know.

BRIAN SOZZI: Except for his.

JULIE HYMAN: All right.