U.S. Consumers Protected from Rising Prices

(eToro Blog) The consumer price index rose 0.3% in September in line with market expectations. The core CPI rose 0.1%. The core CPI data excludes food and fuel costs. This was the slowest cost of living increase in three months despite Producer Price Index creeping higher by 0.2% in yesterday’s economic release.

Retailers are hesitant to pass on higher costs as consumers are extremely price sensitive. High unemployment rate at 9.1% and a weak housing market has squeezed the buying power of consumers. In the mean time raw material costs have continue to rise as seen by PPI data. No CEO wants the negative publicity of raising prices on consumers during tough times. The movie rental company Netflix faced a huge backlash from consumers this summer when it raised prices of its rental service. The stock price of Netflix dropped 15% right after the price increase as subscribers cancelled their plans.

Economists say that Fed’s policies seem to working as inflation is under control. Federal Reserve Chairman Ben Bernanke has said that it expects inflation to tone down in the next few months. Critics of the Fed have complained that the latest Operation Twist by the Fed will drive up inflation.

Clothing prices dropped the most since 1998. Prices also fell for used cars and renters also saw the smallest increase in rent in the past four months. According to the latest housing starts data, there was a 15% increase in construction of new apartments and condominiums. More Americans are renting as record foreclosures have driven people to becoming renters. Banks have tightened their lending standards making it more difficult for people to qualify for mortgages despite record low interest rates. The Fed initiated Operation Twist to encourage more home sales with lower long term interest rates.

U.S. stock markets are mixed with the Dow up 0.2%, the Nasdaq down .6% and the S&P 500 down 0.1%. Traders on OpenBook are bearish on the Dow (DJ30) with a ratio of 6 shorts for every long. Shorts have their limits around 11,800 and stops around 11,000.


 
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