Consumer spending in the US surged in September, driven by increased purchases of motor vehicles and travel. However, there are concerns about rising inflation and its impact on the economy. Measures of US inflation barely declined in September, with consumer prices rising 0.4% from August to September. Core prices, which exclude volatile food and energy costs, climbed 4.1% in September from a year earlier. The Federal Reserve has been raising interest rates to control inflation, but policymakers are debating whether another rate increase is necessary. In Canada, manufacturing sales declined in September, indicating softer economic growth. Consumer-related sectors, such as retail sales and hospitality services, have weakened significantly. The US Federal Reserve will closely watch the October US CPI report for inflation pressures, while in Canada, manufacturing sales are expected to have declined in September.
According to a report by Apollo, a record number of US consumers are planning to vacation in a foreign country in the next six months. This surge in travel plans is attributed to US households wanting to engage in various activities such as flying, staying at hotels, dining out, attending sporting events, amusement parks, and concerts. The high demand for non-housing services is contributing to the continued high inflation in this sector. While the October CPI report showed a cooling in inflation, the 'supercore' PCE price index, excluding housing, has remained around 4%, which is double the Fed's inflation target. The Federal Reserve is expected to keep interest rates higher for a longer period to control inflation in the non-housing service sector.
Reflation is taken into account in the consumer price index published by Statistics Canada. The price surveys consider the formats of the CPI components, which may change over time. If the quantity of a product decreases while the price remains the same, it is considered a price increase that the CPI takes into account. Measuring inflation accurately is complicated, especially when it comes to measuring quality. Statistics Canada considers factors like increased data in internet packages as a decrease in price. However, changes in food quality may go unnoticed.
The US Federal Reserve and Statistics Canada are both grappling with the complexities of measuring and accounting for inflation. As the economy continues to recover and consumer spending remains strong, policymakers will closely monitor inflation indicators to make informed decisions about interest rates and economic stability.
An economist has highlighted the possibility of a 'hidden recession' where official figures may be understating the impact of inflation. The economist argues that inflation is eroding the purchasing power of consumers, leading to a decline in real economic activity. The official figures may not accurately reflect this decline due to the way inflation is measured. The economist suggests that a more accurate measure of inflation should take into account the rising costs of essential goods and services. This 'hidden recession' could have significant implications for the economy and policymakers. [6c910d6b]