"Market Vulnerability: Is the Fourth-Quarter Inflation 'Surprise' Catching Investors Off Guard?"

A prolonged strike by the United Auto Workers (UAW) could contribute to upside inflation risks through year-end and disrupt financial-market expectations. The strike has the potential to push up vehicle prices and embolden other workers to demand higher compensation. Along with rebounding medical costs, these factors could lead to an unexpected inflation surprise in the fourth quarter, keeping the Federal Reserve in play. Financial markets may not be fully prepared for a scenario where price gains remain around 3%, and there is complacency that inflation will continue to drift down towards the Fed's 2% target. The rise in energy prices will have a direct impact on inflation and propagate through to other goods and services.