How Hurricane Harvey stoked higher U.S. inflation and cost families across the country

The worst U.S. jobs report in seven years shows how tough it is now for the minders of the American economy to see it through disruptions caused by natural disasters.

The economy supposedly lost 33,000 jobs in September, the government reported Friday, but that’s really not the case. Hurricanes Irma and Harvey simply delayed some hiring and prevented at least 1.5 million Americans from getting to work in Florida and Texas.

The effects of the storms will exaggerate other key yardsticks of the economy in September, including this week’s reports on retail sales and inflation.

The “hurricanes and their aftermaths have affected economic data for August and September, and will probably continue to have a significant impact for another month or two,” said Joshua Shapiro, chief economist at MFR Inc. in New York.

Trying to figure out the extent of the impact may be a fool’s errand.

Take retail sales. Millions of Americans in the path of Irma were forced to flee, and thousands of businesses temporarily closed. While the evacuation dented the Florida economy in some ways, many people also had to stock up on supplies of food, gas, lumber and other staples ahead of the storm.

Car sales, for their part, actually surged last month to the third highest level ever. Part of the reason: Lots of cars were destroyed by flooding after Hurricane Harvey in late August.

“Many storm-damaged vehicles got scrapped in the greater Houston area,” economists at Nomura Securities wrote.

Not only did the storms boost car sales, but the sudden influx of demand may have caused prices for new and used vehicles to rise. What’s more, the cost of gasoline rose after refineries in the Gulf region were knocked off-line.

The result: Inflation probably surged last month.

“There will be no mystery in the September inflation data,” said Richard Moody, chief economist of Regions Financial.

The Federal Reserve is paying close attention to prices as it prepares to raise a key short-term interest rate for the third time this year. But central-bank VIPs are likely to brush off a September spike in inflation.

Still, most senior Fed officials maintain the view that inflation will rise soon because of a tight labor market and a steadily expanding economy. The puzzling absence of price pressures recently has not persuaded them to back off.

In its most recent forecast, the Fed predicted its preferred measure of inflation would rise to a 1.9% annual rate by next year from the current level of 1.4%. That’s just a hair below the bank’s 2% target.

Wall Street hopes to get a better inkling of the debate inside the Fed over the future path of inflation when the bank issues a summary of its September board meeting.
Source: MarketWatch

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