On Friday oil (brent crude, the international oil gauge) cost $47, about the same price as on September 17th, the day of the latest Fed meeting ($47) and close to the low from January ($46.59). So, since January oil
didn´t get any cheaper! (bloomberg) The downward pressure had already disappeared in
the recent months! It seems that the oil price is sticking close to the $50 mark bolstered by reports about a shrinking US oil production. Meanwhile the basic inflation rate is advancing. The US core inflation rate (without food & energy) advanced in September to 1.9% (August 1.8%), driven by climbing rents and more expensive services, especially rising health care costs.
Fed´s decesion against an interest hike in September might als have been influenced by the turbulences on the global financial markets in August & September, but since then the markets calmed: Wall Street (S&P 500) gained 4%, China´s stock market (Shanghai Composite) jumped more than 10% and the Chinese currency (Yuan) stopped her decline as well.
Zero interest rates don´t fit to a growing economy. US weekly jobless claims are on a 40 years low (bloomberg), retail sales are growing with a solid speed (ex-gasoline plus 4.8% on a YoY basis calculatedrisk) and on Friday we heard that manufacturing in US & Europe rebounded this month (capital).
It is likely that in the coming months the tightening labor market will
drive wages and therefore labor costs upwards which should translate
into higher prices for services and labor intensive goods. And we are
already experiencing rapidly climbing rents and health care costs. Zero
interest rates for too long could lead to an overheating labor market
and push the core inflation rate higher.