3 Insights That Cause Higher Than Expected Inflation In October!

If you take a quick glimpse at all primary categories calculated in the Consumer Price Index (CPI), you can instantly find out that energy prices are skyrocketing crazily and significantly. And of course, there are multiple possible reasons for this continual chaos, such as the price of housing and transportation.

1. Ongoing demand for energy

According to the National Oceanic and Atmospheric Administration (NOCC), they forecast the possibility of El Niño of 2021; however, they end up finding out chances are greater than 87% that La Niña will occur starting this December and continue until February in 2022. In other words, the Northern Hemisphere will be even colder, aggravating the concern of energy capacity.

2. Non-stop high housing prices

Housing price accounts for about 30% to 40% of the calculation of CPI. As a result, if the housing price increases by 1%, it will have tremendous impacts on the inflation rate. Based on Federal Reserve Economic Data (FRED), the homeowner vacancy rate in the US is only 0.9% which indicates the demands for houses are extremely high. In addition, the current mortgage rate is quite low, which encourages more people to purchase in advance.

3. New cars shortage, low inventories

Referring to FRED, the auto inventory/sales ratio in September is only 0.5%, almost 3.4% lower compared with April in 2020. Due to the shortage of raw materials or intermediate goods, like semiconductors, manufacturers of cars struggle to meet the markets’ demand. Therefore, some consumers switch to used car markets to satisfy their needs. To sum up, this situation led to the increase of new cars and used car prices.

In a nutshell, not only is crude oil price rising intensively, but the market demand for energy, houses, cars are also enormous. So, these are the main 3 reasons why the inflation rate hit a 31-year high in October, which is 6.2%.

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