Finance

“This may be the most dangerous time the world has seen in decades,” CEO Jamie Dimon said in a statement that accompanied the bank’s earnings news release.
Beyond the military conflicts in Ukraine and Israel, Dimon cited the burgeoning national debt and “the largest peacetime fiscal deficits ever.”

Jamie Dimon, Chairman of the Board and Chief Executive Officer of JPMorgan Chase & Co., gestures as he speaks during an interview with Reuters in Miami, Florida, U.S., February 8, 2023. 
Marco Bello | Reuters

Beyond the military conflicts, Dimon cited the burgeoning national debt and “the largest peacetime fiscal deficits ever” that he said are raising the risks that inflation and interest rates remain high.
Along with the high rates, he mentioned the Federal Reserve’s efforts to reduce its bond holdings. The process, known as quantitative tightening, “reduces liquidity in the system at a time when market-making capabilities are increasingly limited by regulations,” he said.
Dimon recently has said that he has been warning clients about the possibility that interest rates may not only stay elevated but also could rise significantly from here.
“While we hope for the best, we prepare the Firm for a broad range of outcomes so we can consistently deliver for clients no matter the environment,” he said.
JPMorgan Chase showed a $13.15 billion, or $4.33 a share, profit for the July-through-September period, a 35% jump from a year ago. Dimon further cautioned that the performance came from benefits to net interest income and credit costs that likely won’t last. More

The U.K.’s Competition and Markets Authority gave the green light to Microsoft’s proposed $69 billion takeover of gaming firm Activision Blizzard, removing the last major hurdle for the deal to close.
Microsoft first proposed the acquisition of Activision Blizzard in January 2022 but has faced regulatory challenges in the U.S., Europe and U.K ever since.
Regulators were concerned that the takeover would reduce competition in the gaming market, in particular around the nascent area of cloud gaming.

Britain’s top competition watchdog on Friday gave the green light to Microsoft’s proposed $69 billion takeover of gaming firm Activision Blizzard, removing the last major hurdle for the deal to close.
The Competition and Markets Authority said it had cleared the deal for Microsoft to buy Activision but without cloud gaming rights.

“The new deal will stop Microsoft from locking up competition in cloud gaming as this market takes off, preserving competitive prices and services for UK cloud gaming customers,” the regulator said in a statement Friday.
The CMA was the final regulator holding up the deal. Microsoft should now be able to close the acquisition.

The decision marks a major U-turn from the CMA, the staunchest critic of the takeover, which effectively blocked the deal earlier this year over concerns the acquisition would hamper competition in the nascent cloud gaming market.
Microsoft first proposed to acquire Activision in January 2022, but has since faced regulatory challenges in the U.S., Europe and the U.K.
In July, the CMA said it would consider a restructured acquisition from Microsoft to allay its concerns. Microsoft offered a spate of concessions, which centered around divesting the cloud rights of Activision games to French game publisher Ubisoft Entertainment.

“It will allow Ubisoft to offer Activision’s content under any business model, including through multigame subscription services. It will also help to ensure that cloud gaming providers will be able to use non-Windows operating systems for Activision content, reducing costs and increasing efficiency,” the CMA said.

The UK’s regulatory U-turn

Regulators globally were concerned that the takeover would reduce competition in the gaming market, in particular around cloud gaming. Microsoft could also take key Activision games like Call of Duty and make them exclusive to Xbox and other Microsoft platforms, the officials contended.
Cloud gaming is seen as the next industry frontier, offering subscription services that allow people to stream games just as they would movies or shows on Netflix. It could even remove the need for expensive consoles, with users playing the games on PCs, mobile and TVs instead.

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard logo in this illustration taken January 18, 2022.
Dado Ruvic | Reuters

Specifically, the U.K. regulator argued when it blocked the takeover in April that allowing the deal to go ahead would give Microsoft a strong position in the nascent cloud gaming market.
Authorities in the European Union were the first major regulator to clear the deal in May, after Microsoft offered concessions to the EU.
At the time, the CMA said it stood by its initial decision to block the transaction because the compromises presented to the EU would allow Microsoft to “set the terms and conditions for this market for the next ten years.”
Meanwhile, in the U.S., the Federal Trade Commission was fighting a legal battle with Microsoft in an effort to get the Activision takeover scrapped. In July, however, a judge blocked the FTC’s attempt to do so, clearing the way for the deal to go ahead in the U.S.
Just hours later, the CMA said it was “ready to consider any proposals from Microsoft to restructure the transaction” and allay the regulator’s concerns.

Microsoft concessions to the UK

In August, Microsoft offered concessions to the CMA in its second attempt to get the deal cleared.
Under the restructured transaction, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years. Instead, these rights will be divested to Ubisoft Entertainment before Microsoft’s acquisition of Activision, according to the CMA.
“With the sale of Activision’s cloud streaming rights to Ubisoft, we’ve made sure Microsoft can’t have a stranglehold over this important and rapidly developing market,” Sarah Cardell, CEO of the CMA, said in a statement.
“As cloud gaming grows, this intervention will ensure people get more competitive prices, better services and more choice. We are the only competition agency globally to have delivered this outcome.”
While the U.K. approved the deal, the CMA, which has been growing increasingly aggressive in its actions to scrutinize big mergers, fired a parting shot at Microsoft in which it slammed the tech giant’s negotiation tactics.
“Businesses and their advisors should be in no doubt that the tactics employed by Microsoft are no way to engage with the CMA,” Cardell said.
“Microsoft had the chance to restructure during our initial investigation but instead continued to insist on a package of measures that we told them simply wouldn’t work. Dragging out proceedings in this way only wastes time and money.”

‘Final regulatory hurdle’

The CMA was the last major regulator holding up the Activision takeover.
Microsoft President Brad Smith said on X, formerly known as Twitter, that he is “grateful” for the CMA’s review and decision.
“We have now crossed the final regulatory hurdle to close this acquisition, which we believe will benefit players and the gaming industry worldwide,” Smith said.
Bobby Kotick, CEO of Activision Blizzard, told employees in an email that he is “excited for our next chapter together with Microsoft and the endless possibilities it creates for you and for our players.”
Throughout the regulatory scrutiny, Microsoft had been trying to show regulators and its closest competitors that it will not make games exclusive.
The U.S. tech giant signed a deal in February to bring Xbox games to Nvidia’s cloud gaming service and struck a 10-year deal to bring Call of Duty to Nintendo players on the same day as Xbox, “with full feature and content parity.” Microsoft also signed a deal in July with its biggest rival Sony to bring Call of Duty to the Japanese firm’s PlayStation gaming console. More

Guangzhou-based Ehang on Friday said it received an airworthiness “type certificate” from the Civil Aviation Administration of China for its fully autonomous drone, the EH216-S AAV, that carries two human passengers.
U.S.-listed Ehang claims it’s the first in the world to get such a certificate.
“Next year we should start to expand overseas,” Ehang CEO Huazhi Hu said in an interview, via a CNBC translation of his Mandarin-language remarks.

An EHang all-electric Vertical Takeoff and Landing (eVTOL) two-passenger multicopter aircraft, performs an unmanned display flight at a Korean government event at Yeouido island in Seoul on November 11, 2020.
Ed Jones | Afp | Getty Images

BEIJING — Self-driving air taxis are one step closer to reality in China.
Guangzhou-based Ehang on Friday said it received an airworthiness “type certificate” from the Civil Aviation Administration of China for its fully autonomous drone, the EH216-S AAV, that carries two human passengers. The regulator is the equivalent of the Federal Aviation Administration in the U.S.

U.S.-listed Ehang claims it’s the first in the world to get such a certificate, which allows it to fly passenger-carrying autonomous electric vertical take-off and landing (eVTOL) aircraft in China.
The certificate will also significantly simplify the company’s ability to get similar certificates for commercial operation in the U.S., Europe and Southeast Asia, CEO Huazhi Hu told CNBC in a video conference interview.
“Next year we should start to expand overseas,” he said, noting those regulators still need to establish a process for mutual regulation of the Chinese airworthiness certification. That’s according to a CNBC translation of his Mandarin-language remarks.
Ehang shares have nearly doubled in price this year, before trading was temporarily halted Monday “in anticipation of an upcoming announcement concerning a very significant development regarding its business operations.” Trading was set to resume Friday.
The company has a market capitalization of about $1 billion.

Global regulatory action

The U.S. FAA in July released a plan that provides a path toward allowing similar autonomous flying vehicles, but initially still requires pilots to sit on board.
California-based Joby Aviation, one of the leading industry players in the U.S., announced earlier this month it expanded its flight test program from remote piloting to include a pilot on board — but it didn’t mention any passengers. Joby has a contract with the U.S. Air Force the company claims is worth up to $131 million.
Regulators in China have been paving the way for autonomous flying vehicles to gain certification. In June, China released new rules for unmanned aircraft flight — vehicles without a pilot on board. It is set to take effect Jan. 1, 2024.

Hu said Ehang is still evaluating which city in China the company will launch its first air taxi passenger flight in, and declined to share a specific date. Hu is also Ehang’s founder and chairman of the board of directors.
He noted that China is the fastest-growing and largest market — with the biggest demand — for such flying vehicles.
In the second quarter, Ehang said it set up a joint venture with Shenzhen-listed Xiyu Tourism and delivered five EH216-S units. The venture aims to develop low-altitude tourism with at least 120 Ehang vehicles in the next five years, the company said.
Ehang said it has overseas pre-orders for more than 1,200 units, including from customers such as Japan AirX, Malaysian Aerotree and Indonesia’s Prestige.
Hu said the company would roll out deliveries rather than filling orders all at once given the industry is still in an early stage of development.
Still, he predicts that in about five years, air taxis will be a common sight in many cities.

Safety track record

Friday’s certification news comes as local Chinese governments, including in Beijing, have allowed fully driverless robotaxis on public streets, and in some cases charge fares to the public.
A significant difference between self-driving taxis and self-piloting drones is that while cars on the road must make turns at intersections, a drone flight is between two points in the air, Ehang’s CEO said.
Hu said Ehang started doing autonomous aerial flight testing in 2017. There were some vehicle incidents during the early experimentation period, he said, but no big accidents have occurred during subsequent tens of thousands of flights, including overseas.
“Whenever carrying humans, until now, we have maintained a very good safety track record,” he said. More

China’s trade slumped this year amid lackluster global demand for Chinese good and muted domestic demand.
The world’s second largest economy is set to release trade data for September on Friday.

An aerial view of a container ship leaving the dockyard in Qingdao in east China’s Shandong province.
Future Publishing | Future Publishing | Getty Images

BEIJING — China reported a smaller-than-expected decline in exports in September from a year ago, while imports missed, according to customs data released Friday.
In U.S.-dollar terms, exports fell by 6.2% last month from a year ago. That’s less than the 7.6% drop forecast by analysts in a Reuters poll.

Imports also fell by 6.2% in U.S.-dollar terms in September compared to a year ago — slightly more than the 6% decline expected by the Reuters poll.
China’s exports have fallen on a year-on-year basis every month this year starting in May. The last positive print for imports on a year-on-year basis was in September last year.
China’s trade slumped this year amid lackluster global demand for Chinese good and muted domestic demand.

Bucking the decline in trade with major trading partners were Chinese imports from the European Union, up modestly in September from a year ago, according to CNBC calculations of the official data.
The U.S. is China’s largest trading partner on a single-country basis, while the Association of Southeast Asian Nations has recently surpassed the EU as China’s largest trading partner on a regional basis.

For the first three quarters of the year, China’s exports to the U.S. fell by 16.4%, while imports dropped by 6% during that time.
Russia was the only major country or region in the Chinese customs agency’s report that showed growth in both exports and imports for the first three quarters of the year from a year ago.
By product category, China’s global export of autos remained the fastest growing, up on a unit basis by 64.4% from a year ago for the first three quarters of 2023. That’s slower than the 69% pace for the year recorded as of August.
China’s exports of ships and boats for the year picked up pace from August on a unit basis to a 16.2% year-on-year increase in the third quarter.
The volume of China’s cosmetics imports fell by 14.2% in the first three quarters compared to a year ago. The volume of crude oil imports rose by 14.6% during that time but fell on a U.S. dollar basis.
The pace of crude oil imports on a year-to-date basis in September was little changed from August.

Slowing economic growth

China’s recovery from the pandemic slowed in the last few months, dragged down by a slump in the massive real estate sector.
The International Monetary Fund this week trimmed its 2023 China growth forecast to 5% from 5.2%, while maintaining a global growth forecast of 3% for the year. The world economy grew by 3.5% last year.
China is set to report September retail sales on Oct. 18, along with third-quarter GDP figures.
Amid rising tensions with the U.S. and Europe in the last few years, China has sought to boost its trade with regional partners in Southeast Asia, as well as countries participating in the Belt and Road Initiative. The BRI is a China-led push for developing regional infrastructure such as ports and railways.

As of the end of September, China said it has trains running to 217 cities in 25 European countries.
Cargo transported along those rail lines accounted for 8% of China-EU trade in 2022, up from 1.5% in 2016, Chinese officials said this week.
China also claimed imports and exports with Belt and Road partner countries reached $19.1 trillion between 2013 and 2022 — for an average annual growth in trade of 6.4%.
The third Belt and Road forum is scheduled to be held in Beijing Tuesday and Wednesday. Russian President Vladimir Putin is expected to attend. More

Bank stocks remain under pressure due to high interest rates as financial firms like Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) get ready to kick off earnings season. Like other big banks, Wells Fargo and Morgan Stanley have been caught in the throes of the central bank’s interest-rate-hiking campaign over the past 18 months. Both have been pulling back on lending to be more conservative with their capital as credit conditions have tightened — with a potentially negative impact on revenue streams and overall profits when the firms report earnings in the coming days. “Increasingly, I think that the only thing that can change things with either bank is the end of the tightening cycle so people will be less worried about credit woes,” Jim Cramer said Wednesday . As part of its effort to battle persistent inflation, the Fed has raised its benchmark interest rate 11 times since March 2022, with rates at their highest levels in 22 years . On top of operating in a high-interest-rate environment, financial firms are still rebounding from the collapse of a string of regional lenders, starting with the shuttering of Silicon Valley Bank (SVB) in March. Wells Fargo and Morgan Stanley are down on the year amid the difficult backdrop, falling 4.3% and 8.6%, respectively. The KBW Bank Index , a benchmark stock index of the banking sector, has lost more than 24% year-to-date. Still, both Club banks have solid fundamentals and diverse revenue streams that leave us bullish in the long term. Wells Fargo is set to report third-quarter results before the opening bell on Friday, while Morgan Stanley is slated to post results next Wednesday. WFC YTD mountain Wells Fargo (WFC) year-to-date performance For the three months ended Sept. 30, analysts expect Well Fargo to report revenue of $20.1 billion, compared with $19.5 billion during the same period a year prior, according to Refinitiv. Earnings-per-share should come in at $1.24, up 45% year-over-year, Refinitiv estimates showed. Wells Fargo’s cost-cutting measures and its forecast for its real estate loans will be front and center Friday. Out of the major U.S. banks, Wells Fargo has the largest exposure to the ailing commercial real estate market, an industry troubled by higher rates and near-record office vacancy levels. Offices represent roughly 22% of Wells Fargo’s outstanding commercial property loans and 3% of its whole loan book. In the bank’s July earnings report, CEO Charlie Scharf said Wells Fargo sustained “higher losses in commercial real estate, primarily in the office portfolio,” adding that while there have been “significant losses in our office portfolio-to-date, we are reserving [capital] for the weakness that we expect to play out in that market over time.” Wells Fargo “remains focused on making the company more efficient and has been reducing headcount” since the third quarter of 2020, Barclays analysts wrote in a recent note. In September, Chief Financial Officer Mike Santomassimo said the bank could slash headcount further, on top of nearly 40,000 layoffs over the past three years. Meanwhile, Wells Fargo slowed its pace of stock buybacks significantly over the past few quarters, even though the stock is at a lower price point and the bank remains well-capitalized. “My hope is that this Friday [Scharf] changes his mind when the company reports and it can sop up the excess stock,” Jim said. Scharf “has bought back 300 million shares, almost a tenth of the share count, since he took over in 2019,” Jim added. MS YTD mountain Morgan Stanley (MS) year-to-date performance For the three months ended Sept. 30, analysts expect Morgan Stanley to report revenue of $13.2 billion, up from $12.9 billion during the same period last year, according to Refinitiv. Earnings-per-share should fall 16% year-over-year, to $1.28. For the past several quarters, Morgan Stanley’s investment banking business – once crucial to its bottom line – has been lagging on macroeconomic uncertainty. Companies have pulled back on mergers and acquisitions amid growing concerns that a recession is on the horizon. Indeed, the value of global M & A plunged 44% in the first five months of 2023, according to data analytics firm GlobalData . During a recent conference, Morgan Stanley executives said that capital markets will likely improve in 2024, potentially setting up its investment banking division for a stronger year. The bank said its “more confident now than any time this year about an improved outlook for 2024.” Morgan Stanley has adapted to the struggling M & A and initial-public-offering markets by leaning more into wealth management, a strategy we think highlights the bank’s ability to deftly navigate a range of headwinds . “Morgan Stanley is doing everything it can to be less of a bank and more of a financial advisor,” Jim said Wednesday. And, with Chief Executive Office James Gorman expected to retire early next year, we’ll be looking for any further guidance from the company on its succession plans. (Jim Cramer’s Charitable Trust is long WFC, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A combination file photo shows Wells Fargo, Citibank, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs.

Bank stocks remain under pressure due to high interest rates as financial firms like Club holdings Wells Fargo (WFC) and Morgan Stanley (MS) get ready to kick off earnings season. More

Higher rates are expected to lead to a jump in losses on banks’ bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.
KBW analysts Christopher McGratty and David Konrad estimate banks’ per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs.
Earnings season kicks off Friday with reports from JPMorgan Chase, Citigroup and Wells Fargo.

Jamie Dimon, Chairman of the Board and Chief Executive Officer of JPMorgan Chase & Co., gestures as he speaks during an interview with Reuters in Miami, Florida, U.S., February 8, 2023. 
Marco Bello | Reuters

American banks are closing out another quarter in which interest rates surged, reviving concerns about shrinking margins and rising loan losses — though some analysts see a silver lining to the industry’s woes.
Just as they did during the March regional banking crisis, higher rates are expected to lead to a jump in losses on banks’ bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.

KBW analysts Christopher McGratty and David Konrad estimate banks’ per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs.
“The fundamental outlook is hard near term; revenues are declining, margins are declining, growth is slowing,” McGratty said in a phone interview.
Earnings season kicks off Friday with reports from JPMorgan Chase, Citigroup and Wells Fargo.
Bank stocks have been intertwined closely with the path of borrowing costs this year. The S&P 500 Banks index sank 9.3% in September on concerns sparked by a surprising surge in longer-term interest rates, especially the 10-year yield, which jumped 74 basis points in the quarter.
Rising yields mean the bonds owned by banks fall in value, creating unrealized losses that pressure capital levels. The dynamic caught midsized institutions including Silicon Valley Bank and First Republic off guard earlier this year, which — combined with deposit runs — led to government seizure of those banks.

Big banks have largely dodged concerns tied to underwater bonds, with the notable exception of Bank of America. The bank piled into low-yielding securities during the pandemic and had more than $100 billion in paper losses on bonds at midyear. The issue constrains the bank’s interest revenue and has made the lender the worst stock performer this year among the top six U.S. institutions.
Expectations on the impact of higher rates on banks’ balance sheets varied. Morgan Stanley analysts led by Betsy Graseck said in an October 2 note that the “estimated impact from the bond rout in 3Q is more than double” losses in the second quarter.

Hardest-hit banks

Bond losses will have the deepest impact on regional lenders including Comerica, Fifth Third Bank and KeyBank, the Morgan Stanley analysts said.
Still, others including KBW and UBS analysts said that other factors could soften the capital hit from higher rates for most of the industry.
“A lot will depend on the duration of their books,” Konrad said in an interview, referring to whether banks owned shorter or longer-term bonds. “I think the bond marks will look similar to last quarter, which is still a capital headwind, but that there’ll be a smaller group of banks that are hit more because of what they own.”
There’s also concern that higher interest rates will result in ballooning losses in commercial real estate and industrial loans.
“We expect loan loss provisions to increase materially compared to the third quarter of 2022 as we expect banks to build up loan loss reserves,” RBC analyst Gerard Cassidy wrote in a Oct. 2 note.

Silver linings

Still, bank stocks are primed for a short squeeze during earnings season because hedge funds placed bets on a return of the chaos from March, when regional banks saw an exodus of deposits, UBS analyst Erika Najarian wrote in an Oct. 9 note.
“The combination of short interest above March 2023 levels and a short thesis from macro investors that higher rates will drive another liquidity crisis makes us think the sector is set up for a potentially volatile short squeeze,” Najarian wrote.
Banks will probably show stability in deposit levels in the quarter, according to Goldman Sachs analysts led by Richard Ramsden. That, and guidance on net interest income in the fourth quarter and beyond, could support some banks, said the analysts, who are bullish on JPMorgan and Wells Fargo.
Perhaps because bank stocks have been so beaten down and expectations are low, the industry is due for a relief rally, said McGratty.
“People are looking ahead to, where is the trough in revenue?” McGratty said. “If you think about the last nine months, the first quarter was really hard. The second quarter was challenging, but not as bad, and the third will be still tough, but again, not getting worse.” More

Leon Cooperman at the 2019 Delivering Alpha conference in New York on Sept. 19, 2019.
Adam Jeffery | CNBC

Billionaire investor Leon Cooperman said he remains a bear with little interest in the broader stock market, partly because it’s underestimating the risk of a fiscal crisis.
“I’m of the view that we borrow from the future with very profligate fiscal policy,” Cooperman said at CNBC’s Financial Advisor Summit. “Ultimately, we will have a crisis in public sector finance, and the market is not discounting a crisis. Overall, I expect very little from the market.”

The chair and CEO of the Omega Family Office said the unprecedented stimulus has pulled demand forward and created an artificial situation in the economy. The national debt of the U.S. recently reached a historic milestone by passing $33 trillion for the first time.
Given his long-term pessimism, Cooperman isn’t buying the stock market benchmarks. Instead, he’s hunting for bargains in individual names.

Stock chart icon

“The market has been, as you know, extraordinary bifurcated. If you take out the Magnificent 7, the overall market has done nothing and maybe it’s down a little bit or flat,” Cooperman said. “I’m not interested in the S&P. I’m interested in individual stocks.”
He said he would be very surprised if the S&P 500 climbs above 4,600 anytime this year. The large-cap benchmark is still up about 13% this year, trading around 4,344.
The veteran investor said his advice for what to buy right now would be, in order of preference, his favorite cheap stocks, then short-dated Treasurys, and his least favorite would be long-term bonds. Some of his favorite value names are Canadian energy producers Tourmaline Oil and Paramount Resources. More

The consumer price index rose 3.7% in the 12 months through September, unchanged from August, the U.S. Bureau of Labor Statistics said Thursday.
Pandemic-era inflation peaked at 9.1% in June 2022, the highest rate since November 1981.
The Federal Reserve aims for a 2% annual inflation rate over the long term. Fed officials don’t expect that to happen until 2026.

Mario Tama | Getty Images

Inflation was unchanged in September, but price pressures seem poised to continue their broad and gradual easing in coming months, according to economists.
In September, the consumer price index increased 3.7% from 12 months earlier, the same rate as in August, the U.S. Bureau of Labor Statistics said Thursday.

The latest reading is a significant improvement on the Covid pandemic-era peak of 9.1% in June 2022 — the highest rate since November 1981.
“The speed of the decline is always going to be uncertain,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics. “But anywhere you look, [data] suggests inflation should be falling rather than rising.”

The CPI is a key barometer of inflation, measuring how quickly the prices of anything from fruits and vegetables to haircuts and concert tickets are changing across the U.S. economy.
Despite recent improvements, economists say it will take a while for inflation to return to normal, stable levels.
The Federal Reserve aims for a 2% annual inflation rate over the long term. Fed officials don’t expect that to happen until 2026.

“Ultimately, inflation is still the most menacing issue in the economy right now,” said Sarah House, senior economist at Wells Fargo Economics. “We’re edging our way back [to target], but there’s still quite a bit of ground to cover,” she added.

Gas prices still something consumers ‘contend with’

Gas prices were up 2.1% in September, on a monthly basis — a “major contributor” to inflation last month, the BLS said.
However, that’s a big improvement from August, when prices at the pump jumped 10.6% during the month largely due to dynamics in the market for crude oil, which is refined into gasoline.
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“It’s still something consumers have to contend with, but not as big an increase as what households were having to deal with in August,” House said.
Prices have fallen in October, too. The average price per gallon was $3.68 as of Oct. 9, down 15 cents a gallon since Sept. 25, according to the Energy Information Administration.

Housing inflation continues to move downward

When assessing underlying inflation trends, economists generally like to look at a measure that strips out energy and food prices, which tend to be volatile from month to month.
This pared-down measure — known as the “core” CPI — fell to an annual rate of 4.1% in September from 4.3% in August.
Shelter — the average household’s biggest expense — has accounted for more than 70% of that total increase in the core CPI over the past year. Housing inflation increased in September, to its highest monthly rate since May.

However, the housing-price trend “remains firmly downward,” and should continue to slow through roughly summer next year, House said.
“That will be an important source of the overall rate of disinflation as we move through 2024,” she said.
Other categories with “notable” increases in the past year include motor vehicle insurance (up 18.9%), recreation (up 3.9%), personal care (up 6.1%) and new vehicles (up 2.5%), the BLS said.

Why inflation is returning to normal

At a high level, inflationary pressures — which have been felt globally — are due to an imbalance between supply and demand.
Energy prices spiked in early 2022 after Russia invaded Ukraine. Supply chains were snarled when the U.S. economy restarted during the Covid-19 pandemic, driving up prices for goods. Consumers, flush with cash from government stimulus and staying home for a year, spent liberally. Wages grew at their fastest pace in decades, pushing up business’ costs.
Now, those pressures have largely eased, economists said.

Plus, the Federal Reserve has raised interest rates to their highest level since the early 2000s to cool the economy. This tool aims to make it more expensive for consumers and businesses to borrow, and therefore rein in inflation.
Average wage growth also declined to 4.4% in September, from a peak 9.3% in January 2022, according to Indeed data.
“Most of the evidence suggests the economy is still strong, but maybe cooling a bit,” Hunter said. “Labor market conditions are continuing to gradually cool as well.”
That said, there are a few potential sources of upward pressure on inflation, economists said. For example, the Israel-Hamas war has the potential to nudge up global energy prices. United Auto Workers strikes could elevate prices for cars if inventory declines. More