Cramer Says Fed Won't Need To Keep Tightening As 'Root Cause' Of Inflation Finally Heading In 'Right Direction'

Zinger Key Points
  • Market gained the most since 2020 on Thursday following data showing a cool-off in inflationary pressure.
  • Some components of the inflation report have given hopes that the pullback could be sustainable.
Cramer Says Fed Won't Need To Keep Tightening As 'Root Cause' Of Inflation Finally Heading In 'Right Direction'

As the euphoria over tamer-than-expected inflation settles down, a component of inflation raises hope that a sustainable downtick could be well on its way, according to CNBC's Mad Money host Jim Cramer.

What Happened: Cramer based his argument on the October data on the cost of transporting goods to consumers.

“We caught a real break today with a much lower-than-expected consumer price index number and a huge part of that came down to how much it costs to get goods to the consumer,” he said.

Cramer added that the Fed won’t need to tighten monetary policy any further since the “root cause of inflation” —  the movement of goods between locations — is finally heading in the “right direction.”

See Also: 3 Experts On What 7.7% CPI Print Means For The Federal Reserve: Is A 'Dovish Fed Pivot' On The Horizon?

The stock picker said it was hard to move goods around, which manifested in higher consumer prices. Transportation companies needed more trucks, more drivers and more fuel to reach products to consumers, pushing up their cost of doing business, and they had no other option but to pass through the increases to consumers, Cramer added.

Headline inflation will likely cool off further when supply costs for the freight industry, such as labor and equipment, decline further, he added.

Freight and logistics company C.H. Robinson Worldwide Inc. CHRW recently announced layoffs following the hiring spree seen post the COVID-19 pandemic to take advantage of the boom.

“C.H. Robinson can’t charge as much when these costs go down. That’s where the big deflation gain really kicks in,” Cramer said.

Why It’s Important: Opinions are divided over whether the October inflation reading is a blip on the radar or reflects a beginning of a downtrend. Given the Fed’s fixation on fighting inflation and bringing it within its target of 2%, it is imperative that the Fed may neither pause nor pivot until it gains confidence that inflation can be reined in.

The Fed is widely expected not to abruptly take its foot off the pedal but slow down the pace of rate hikes to restore confidence in the economy and markets.

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