Markets Brace for Highest Inflation Print in 39 Years

Traders work on the floor of the New York Stock Exchange, on Dec. 1, 2021. Richard Drew/AP Photo

Inflation numbers due to be released later Friday by the U.S. Bureau of Labor Statistics (BLS) are expected to show consumer prices rising at their fastest pace since 1982, with investors bracing for what could be a market-moving data drop.

Consensus forecasts expect inflation to have picked up its annual pace to 6.8 percent in the 12 months through November, which would be the highest annual rate since May 1982, when it hit 6.9 percent.

If the prediction holds, that would amount to a 5.7 percentage point increase in the consumer price index (CPI) inflation gauge from the 1.1 percent rate in November 2020. And that would be the biggest 12-month gain in the measure since the aftermath of the brief recession in the late 1940s saw the CPI gauge spike by over 10 percentage points.

On a month-over-month basis, economists expect inflation to have cooled its pace somewhat. Consensus forecasts predict a 0.7 percent rate of inflation in November, down from October’s 0.9 percent, which was more than double September’s rate of 0.4 percent and an indication that inflation was accelerating.

Last month’s CPI print, which showed inflation picking up its monthly pace and the annual inflation rate hitting 6.2 percent—its highest level in 31 years—delivered a blow to the Fed’s “transitory” inflation narrative, with Federal Reserve Chair Jerome Powell saying in recent testimony that it was time to abandon that term in describing the current inflationary environment.

Besides high inflation, a flurry of labor market data—including job openings rebounding to near-record highs, the labor force participation rate edging up, unemployment falling to 4.6 percent, and weekly jobless claims plunging to their lowest level since 1969—have further bolstered the case for monetary tightening.

When the BLS releases its price data later Friday, any upside inflation surprise will likely be seen by investors as a case for a faster wind-down of the Federal Reserve’s loose monetary conditions, which have provided a tailwind to financial markets.

“Seeing substantial and more than ‘transitory’ inflation, high levels of job openings and the ongoing ‘Great Resignation,’ the Federal Reserve appears to be in the process of making a shift to a quicker end to monthly asset purchases,” Bankrate Senior Economic Analyst Mark Hamrick told The Epoch Times in an emailed statement. “That’s a likely prelude to higher interest rates sooner. But record low interest rates can’t and shouldn’t last forever.”

The Fed is currently on track to phase out its $120 billion per month in bond purchases at a pace of $15 billion per month, which would conclude the process in June. The Fed has, however, left the door open to a faster taper if conditions warrant, with expectations building for that to be the case when the central bank convenes its next policy meeting next week.

Goldman Sachs analysts recently predicted that high inflation would force the Fed to double its pace to $30 billion per month starting January, bringing the taper to a close in March and paving the way for interest rates to rise.

There’s a 40.1 percent chance of the Fed making its first 25-basis point rate hike in March, according to the CME’s Fed Watch tracker.