Dow, S&P 500 and inflation

Inflation is expected to have eased somewhat in October in part because of improved supply chains but also a weaker housing sector, which has led to decreased demand for home appliances and other goods.

Additionally, the latest inflation numbers could benefit from the way the Bureau of Labor Statistics tabulates the index. To calculate medical services prices, the agency uses health insurance providers’ retained earnings, or profit margins. That data is published once a year and with a lag. During the past 12 months, the medical services category reflected the robust profit margins from 2020, when people stayed home or delayed doctor visits — but that will rebalance in the October report, which will reflect the 2021 return to elective surgery and other health services.

CPI has come in hot for the past two months, showing overall price increases mellowed only slightly during the respective 12-month periods, and core CPI shot up much faster than anticipated.

Shelter remained an inflation driver, but the surge in core CPI was a reflection of a potentially sticky problem: Inflation has been settling in deeper into service industries.

Unlike in goods, where inflationary inputs include supply chains and commodity prices, the biggest input into service-providing industries is labor costs.

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