Tag: inflation

Weekly Recap

Last week’s main event was the December FOMC meeting. As expected, the Fed raised overnight interest rates by 50bp, bringing the final tally for 2022 to 425bp of increases since “lift-off” in March. But despite better-than-expected CPI data that was released earlier in the week, Jerome Powell’s inflation-fighting rhetoric was as hawkish as ever, dampening equity investors’ hopes of a more dovish Fed in 2023.

The Fed’s impact on equity trading was very obvious last week. From Monday’s open through 2:00 pm on Wednesday (the time of the Fed’s rate decision and press release), the S&P 500 rose nearly 3% thanks to the aforementioned moderation in the inflation trend. But from the conclusion of the FOMC meeting through Friday’s close, the index fell nearly 5%, to finish down 2% overall on the week. Most other domestic and international equity benchmarks experienced similar declines.

Meanwhile, the bond market’s response suggested that investors are becoming less concerned about inflation, and more concerned about a Fed-induced recession. Fed Fund Futures markets continue to undershoot the Fed’s own interest rate projections (see the updated Dot Plot below), and Treasury yields fell across the curve following the FOMC meeting, pushing bond prices higher.

Apart from the Fed and inflation, most of last week’s incoming data suggested a slowing economy. Retail sales fell 0.6% sequentially in November, while Industrial Production and Capacity Utilization both fell by 20bp. Meanwhile, the Empire Manufacturing (-11.2) and Philly Fed (-13.8) surveys both sunk deeper into contraction territory in the December prints, as did S&P’s US Manufacturing (46.2), Services (44.4), and Composite (44.6) PMIs.

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing in two additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

Inflation

After reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

Weekly Recap

Risk assets struggled last week as concerns about global economic growth intensified. Oil fell nearly $9/barrel to its lowest level since December of last year. Meanwhile, a higher than expected Producer Price Inflation (PPI) print for November pushed short rates higher. While PPI remains well off its highs on a y/y basis (see the Chart of the Week), the sequential reacceleration in core (ex food & energy) PPI to +0.4% m/m was noteworthy, particularly in the context of recent comments by various FOMC members about the inflation fight being far from over.

Rising short-term yields deepened the Treasury curve inversion and sent bond prices lower for the first time in more than month. Nevertheless, futures markets remain firmly coalesced around a +50bp rate hike this week, with the February 1st meeting considered to be “in play” for another +50bp hike, or a further deceleration to only +25bp. Credit spreads remained stable on the week, pushing small price declines through to US corporate bonds.

Domestic equity markets endured a week of rough performance, with most benchmarks down somewhere in the 3% to 5% range. Small caps underperformed. International stocks were better, particular E/M which was boosted by another week of strong performance from Chinese equities. Since bottoming out at the end of October, the MSCI China index is up nearly 40% in just six weeks on growing optimism that Beijing’s Zero Covid policy is being replaced by less draconian containment strategies.

Albion’s “Four Pillars

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2 additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

Inflation

After reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

Weekly Recap

Stocks and bonds rallied in unison last week, thanks largely to comments from Fed Chair Jerome Powell on Wednesday afternoon. Speaking at the Brookings Institute, Powell confirmed that the Fed might slow the pace of rate hikes as soon as the December FOMC meeting. Investors interpreted that to mean that the days of 75bp hikes were over. Futures markets quickly crystalized around a 50bp hike in December, and lowered the expected number of 25bp rate hikes in 1Q23 from 3 to 2.

The impact on bond prices was significant, bringing welcome relief to battered investment grade bondholders. The Treasury yield curve experienced a parallel shift lower by 18-19bp over the course of the week, and credit spreads compressed slightly, extending the tightening trend that began in mid-October. Yields on IG corporates have fallen by roughly 100bp in that time.

Equities got a boost from Powell’s comments as well, particularly rate-sensitive growth stocks in the tech, consumer, and communications sectors. Dividend payers lagged the rally, particularly financials and energy as rates and oil prices dropped, respectively. Meanwhile, Chinese equities continued to move higher on hopes that public unrest would accelerate the removal of Beijing’s “Zero Covid” policy.

Economic news was abundant last week. Housing metrics (prices, sales) were weak, manufacturing gauges point to a contraction in activity, and consumer confidence waned a bit. On the flip side, despite rising unemployment claims and a reduction in open jobs, the monthly nonfarm payroll report came in above expectations at +263k (see the Chart of the Week), while unemployment held steady at 3.7%.

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 17.5x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2 additional 25bp hikes in 2023, with a “terminal” Fed Funds rate slightly below 5% for this cycle.

Inflation

After reaching 40yr highs in spring of 2022, inflation has begun to moderate in recent months. Headline inflation eased over the summer on falling energy prices, and core inflation has followed suit in Q4. Goods inflation has fallen due to softening demand and excess inventory, while heavily lagged housing data is helping to keep services inflation elevated.

Weekly Recap

Stocks and bonds rose in unison during the holiday-shortened week as market participants collectively expressed skepticism regarding recent hawkish comments from various Fed governors. Rates fell across the curve and Fed Fund Futures remained firmly anchored to a 50bp hike in December, despite Susan Collins’ assertion that 75bp was still on the table. Meanwhile the terminal Fed Funds rate for this cycle remains right around 5%, at the absolute bottom of the range that James Bullard said would be necessary to achieve an appropriately restrictive policy rate.

Risk assets responded in kind, with equities moving higher while credit spreads compressed. All sectors in the S&P 500 finished higher on the week, although energy lagged the rally thanks to falling oil prices. Credit spreads extended their recent tightening trend, pushing corporate bond prices higher. Investment grade spreads have come in by roughly 30 basis points in conjunction with the broad rally in risk assets (see the Chart of the Week for a time series).

Economic data was concentrated on Tuesday of last week due to the holiday. Highlights include:

• Durable good orders for October exceeded expectations at +1.0% m/m
• Initial jobless claims rose to 240k, the highest print since mid-August
• S&P’s Mfg. (47.6) and Svc. (46.1) PMIs declined more than expected
• New home sales (632k) unexpectedly rebounded in October
• U of M Consumer Sentiment (56.8) edged higher in the final November print

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2-3 additional 25bp hikes in 2023, with a terminal Fed Funds rate of ~5.0% for this cycle.

Inflation

Inflation remains near 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower over the summer thanks to falling energy prices, and core inflation decelerated in October.

Weekly Recap

Last week featured a number of hawkish pronouncements from Fed governors, in what felt like a coordinated attempt to offset investor optimism that recent inflation data might alter the trajectory of monetary policy. Boston Fed CEO Susan Collins stated on CNBC that a 75bp hike in December is still on the table (futures expect 50bp), while James Bullard from the St. Louis Fed stated during a presentation that an appropriately restrictive policy rate would be in the 5% to 7% (!) range.

In response, futures markets added back the 3rd 2023 rate hike that had largely been priced out after recent CPI and PPI prints. Meanwhile the Treasury yield curve inversion deepened as the front end moved ~25bp higher while long bond yields fell.

Equity investors responded by circling the wagons a bit, bidding up defensive sectors (staples, utilities, and healthcare) while cyclicals, growth stocks, and small caps underperformed. International equities finished higher, particularly Chinese stocks which were up for a 3rd consecutive week on continued signs that Beijing could be moderating its long-held “Zero Covid” policies.

Incoming data continues to show a softening economy. Producer price inflation (PPI) was below consensus at +0.2% m/m and +8.0% y/y. Retail sales surprised to the upside (+1.3% m/m), but housing metrics were weak across the board: permits (-2.4%) and starts (-4.2%) fell sequentially, while NAHB’s sentiment index (33) and existing home sales (4.4mn SAAR) fell to decade-plus lows (ex spring 2020). Industrial production (-0.1%) shrank in October, while the Philly (-19.4) and Kansas City Fed (-6) surveys were solidly in contraction territory for November.

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2-3 additional 25bp hikes in 2023, with a terminal Fed Funds rate of ~5.0% for this cycle.

Inflation

Inflation remains near 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower over the summer thanks to falling energy prices, and core inflation decelerated in October.

Weekly Recap

Stocks and bonds alike staged a strong rally after October CPI data came in below expectations by 20bp across the board:

• Headline CPI was +0.4% m/m and fell to +7.7% y/y
• Core (ex food & energy) CPI was +0.3% m/m and +6.3% y/y

The sequential drop in core CPI was the primary focus of market participants, as it reflects real time inflation dynamics without the volatile impact of food and energy prices. Goods inflation has moved lower as supply chain bottlenecks have eased, leaving services inflation as the primary driver. See the Chart of the Week for a time series of recent m/m prints of the CPI Services component.

Investors responded by immediately removing one full 25bp rate hike from its calculus regarding the forward path of Fed policy, with the reduction relative to previous expectations coming in early 2023 (a 50bp hike is still priced for the December FOMC meeting).

The Treasury curve followed suit, with yields falling in excess of 30bp from the 1y to 10y point, while long bond (30y) yields were down by nearly 25bp as well. Credit spreads continued to drift tighter as well, to the benefit of corporate bonds.

Equity markets responded to the improved inflation / interest rate outlook by moving sharply higher. Returns were generally ordered by duration, with tech and other growth stocks outperforming while higher dividend paying sectors lagged.

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 17x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 2 additional 25bp hikes in 2023, with a “terminal” Fed Funds rate of 4.75-5.0% for this cycle.

Inflation

Inflation is near 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower over the summer thanks to falling energy prices, and core inflation decelerated in October.

Weekly Recap

Last week’s main event was the November FOMC meeting, which concluded with the 75bp rate hike that everyone knew was coming. What was less obvious in advance was whether the Fed would communicate an intent to slow the pace of future rate hikes, potentially as soon as next month’s meeting. On that front, the market was initially excited about the reference to “the lags with which monetary policy affects economic activity and inflation” in the press release. Equities jumped and rates fell. But about an hour later, Fed Chair Jerome Powell stepped to the press conference microphone and made it very clear that even if the pace of hikes slows in the not-too-distant future, rates would probably rise higher and remain high for longer than the Fed and market participants had previously expected.

Once the Fed’s outlook was fully understood, markets quickly reversed course. Rates moved higher, the yield curve inversion deepened, and the “terminal” Fed Funds rate (the point at which the market expects the Fed to stop hiking) was pushed solidly above 5%. US equities fell, particularly longer duration growth stocks as the Nasdaq significantly underperformed. International benchmarks were buoyed by an 11% gain in Chinese stocks, driven by the approval of Pfizer’s mRNA vaccine for foreign residents and speculation that Beijing may reconsider its Zero Covid policy.

The week concluded with the BLS’s monthly jobs report, which had a Goldilocks feel. Job growth continues in the US, but the pace has clearly moderated relative to the first half of the year (see the Chart of the Week for a time series). Unemployment (U3=3.7%) and underemployment (U6=6.8%) ticked higher sequentially, a welcome development for a Fed that is working hard to cool an overheated labor market.

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 16x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing +50bp in December and 3 additional 25bp hikes in 2023, with a “terminal” Fed Funds rate above 5% for this cycle.

Inflation

Inflation is at 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower over the summer thanks to falling energy prices, but core inflation reaccelerated sequentially in August & September.

Weekly Recap

US equities moved sharply higher for a second straight week as investors increasingly became confident that the upcoming November FOMC meeting could represent the last of the 75bp rate hikes. The only sector in the S&P 500 to finish lower was Communications, which was dragged down by a 23.7% decline in META after very disappointing Q3 earnings. Softer digital ad revenue also impacted Alphabet (Google) in the quarter. Q3 earnings season thus far has been mixed, with y/y earnings growth running at just +2% overall (-5% excluding the energy sector).

International stocks were higher as well, with one exception: China. By the end of the 20th China Party Congress, Xi Jinping had solidified his power and made it clear that Chinese companies would continue to see strict oversight under his rule. The MSCI China Index bucked the global trend and dropped 9% on the week.

Bond markets rallied as rates fell in the belly and long end, deepening the inversion. Notably, the 3m/10y curve point finally inverted for the first time in this cycle as well, as the Fed gradually catches up to what has been priced into the Treasury curve for some time now. Credit spreads tightened marginally.

Economic news last week was mixed. Consumer confidence fell and initial jobless claims rose. Mortgage rates topped 7% in the US for the first time since early 2002, while new and existing home sales slowed and home prices fell. Durable goods orders missed expectations, while S&P’s US Manufacturing PMI slipped below 50 and into contraction territory. However, Q3 GDP came in at a robust +2.6% thanks to a rebound in net trade and a resilient US consumer.

Albion’s “Four Pillars”

Economy & Earnings

US GDP rebounded to +2.6% in Q3 after falling in 1H22, and corporate operating margins remain solid at ~12% on the S&P 500. Albion’s base case expectation is that the US economy will enter recession in 2023, putting downside pressure on earnings.

Valuation

The S&P 500’s forward P/E of 16x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. Most or all of this year’s P/E multiple compression has been driven by rates, rather than an expansion of the equity risk premium.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures are pricing in +75bp in November and +50bp in December, with an implied Fed Funds target rate floor of 4.25% by year end.

Inflation

Inflation is at 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower over the summer thanks to falling energy prices, but core inflation reaccelerated sequentially in August & September.

Weekly Recap

Domestic financial markets adopted a strong risk-on tone last week, with the Treasury curve steepening while US equities rallied. Investors appeared to take some comfort from Q3 earnings being less bad than feared thus far, and also in comments from Fed governors that reinforced what futures markets were already predicting, namely a relatively neutral policy stance in 2023 (data permitting).

With some investors taking recession bets off the table, the Treasury yield curve steepened as 2y yields fell 3bp while 10y and 30y yields increased 20bp and 34bp respectively. By Friday’s close, slightly less than half (22 out of 45) Treasury curve points were inverted, down from nearly 65% (29 out of 45) the prior week. Interestingly, the bullish tone in Treasuries was not matched by IG credit spreads, which remained stubbornly wide at 151bp, essentially unchanged on the week.

Equities did embrace the risk-on tone, however, with US large caps rocketing higher by roughly 5% in aggregate. Small and midcap stocks registered meaningful yet slightly smaller gains. International equities lagged but still finished in the green.

Economic data released last week was mixed. Housing starts fell sharply while residential building permits ticked up a hair. Empire Manufacturing and the Philly Fed Business Outlook both fell deeper into contraction territory, but Industrial Production rose 0.4% sequentially in September, beating expectations. Initial jobless claims fell, while continuing claims rose. Lastly, the Conference Board’s Leading Economic Index fell 0.4% sequentially and reach -1.4% on a y/y basis, a level that has always presaged an oncoming recession in the past (see Chart of the Week).

Albion’s “Four Pillars

Economy & Earnings

US GDP fell in Q1 (-1.6%) and in Q2 (-0.6%), but job creation was strong with 2.75mn NFP added in 1H22, and corporate operating margins were robust. Consensus calls for slow economic growth in 2H22, but companies have warned of inflation pressuring margins, and analysts have cut Q3 earnings estimates.

Valuation

The S&P 500’s forward P/E of 16x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. That said, valuations for many growth companies are at or near decade-lows, suggesting forward returns in some sectors could be above average.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures markets are pricing in a total of 17 25bp rate hikes in 2022, with an implied Fed Funds target rate floor of 4.25% by year end.

Inflation

Inflation is at 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower over the summer thanks to falling energy prices, but core inflation reaccelerated sequentially in August & September.

Weekly Recap

Stocks moved sharply higher at the start of Q4, with the S&P 500 posting a 4% gain in just two days to kick off the month of October, although the rally fizzled after Friday’s NFP report (more on that below). Cyclical sectors posted solid gains on the week despite the Friday swoon, while defensives lagged. Energy stocks shot higher following news that OPEC+ would cut production by 2 million barrels today in an effort to shore up oil prices in the face of flagging global demand.

Labor market data was mixed last week, with the Job Openings and Labor Turnover Survey (aka, “JOLTS”) showing a drop in available jobs in the US, from 11.2mn in August to a still elevated 10.1mn last month. Then on Thursday, initial jobless claims arrested a 7-week downtrend and moved higher, to 219k. These signs of weakness were not echoed in Friday’s monthly nonfarm payrolls report, however, potentially giving the Fed wide latitude to continue its aggressive stance on inflation.

Highlights of the monthly jobs report included:

• +263k nonfarm payrolls added (cons = +255k)
• 3.5% unemployment (down 20bp m/m, see the Chart of the Week for history)
• 6.7% underemployment (down 30bp m/m)

In response to the strong labor market data, futures markets have now solidly coalesced around a 4th straight 75bp rate hike at the November FOMC meeting, followed up by another 50bp at the December meeting, for a policy rate floor of 4.25% at year-end. Treasury yields also ticked higher last week as the curve steepened slightly.

Albion’s “Four Pillars”

Economy & Earnings

US GDP growth fell in Q1 (-1.6%) and in Q2 (-0.6%), but job creation remained strong in 1H22 with 2.75mn NFP added. Consensus calls for slow growth in 2H22. Operating margins remained robust in 1H22, but companies have warned that inflation could pressure margins going forward and analysts have cut Q3 earnings estimates.

Valuation

The S&P 500’s forward P/E of 16x is slightly above the long run average. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the single digits. That said, valuations for many growth companies are at or near decade-lows, suggesting forward returns in some sectors could be above average.

Interest Rates

Rates have risen across the curve in 2022 in response to a shift in monetary policy. Fed Fund Futures markets are pricing in a total of 17 25bp rate hikes in 2022, with an implied Fed Funds target rate floor of 4.25% by year end.

Inflation

Inflation is at 40yr highs as supply chain disruptions, labor shortages, and rising energy prices have impacted input costs for many businesses. Headline inflation eased lower in July and August thanks to falling energy prices, but core inflation reaccelerated sequentially in the August print.