Latest Inflation Numbers and Discussion

[milford]

The PPI number was released this morning and came in hotter than expected - 0.3% instead of the 0.1% expected.

While we wait for the Nov CPI report to be released on Dec 13, I thought I’d post some numbers based a recent conversation with Montecfo on the Treasuries thread.

The 12 month unadjusted inflation (Nov 2021 through October 2022) was 7.7%, a drop from much higher 12-month rates earlier in the year.

It’s interesting to see how inflation has trended over the past 6, 4, 3, and 2 months.

Using the cumulative inflation calculator on inflationdata.com

Last 6 months: 3.08% - 6.12% annualized (x2)
Last 4 months: 0.57% - 1.71% annualized (x3)
Last 3 months: 0.59% - 2.36% annualized (x4)
Last 2 months: 0.62% - 3.72% annualized (x6)

As many have said, inflation has clearly peaked, but we aren’t out of the woods yet. And higher inflation, once established, is difficult to get rid of and can take a long time.

2023 should be very interesting…..

Those talking about the possibility of deflation earlier in the year by year-end should know by now its not going to happen anytime soon. The only way I see the inflation cycle breaking next year is a complete demand destruction with mass layoffs or else it'll just keep continuing to inch up.

 

[Closet_Gamer]

I think there’s a good chance inflation will stay high (over 5%) for a while longer. The Atlanta Fed wage tracker shows wages are still above 6% (here), and the BLS shows the “food away from home” rate of increase was still 0.9% for October. (here) Both of these point to strong discretionary spending, which feeds inflation.

As the job market cools I think that will nip some of the wage pressure. More and more articles about the Great Resignation turning into regret and employers now having the upper hand in remote work.

I've seen a handful of articles commenting that managers are shedding remote workers in favor of local people. Some of it is just human nature, easier to whack someone you've never met that the person down the hall.

I heard of one leader (not at my firm) who asked everyone if they thought their job could be remote. When people said they didn't need to be here, he thanked them for the insight, told them they were now competing in the global talent pool, and reposted their jobs including to Indian off shoring firms.

Our megacorp is quietly shedding lots of jobs. Also holding the line at 3% raises, bonuses will be down, and we're having to go into the operating budgets to find money for promotions. First time ever for the last one.

The one flip side could be that people going back into the office will actually spur some spending on clothes, fuel, parking, lunches, etc. A few months ago you could roll into one of the big garages by our building and get a spot at 10a. Now its almost back to pre-pandemic...if you're not in the garage before 9a you have to give the guy your keys so he can park it blocking other cars.

 

[Chuckanut]

I heard of one leader (not at my firm) who asked everyone if they thought their job could be remote. When people said they didn't need to be here, he thanked them for the insight, told them they were now competing in the global talent pool, and reposted their jobs including to Indian off shoring firms.

We will see how that works out. I see that Apple is now tactfully making plans to move a lot of work out of China. Hmm.....

It helps to work in a job where you to touch whatever you work on - people, machines, buildings, etc. It's hard to ship those jobs overseas or even very far out of town.

 

[Koolau]

Those talking about the possibility of deflation earlier in the year by year-end should know by now its not going to happen anytime soon. The only way I see the inflation cycle breaking next year is a complete demand destruction with mass layoffs or else it'll just keep continuing to inch up.

I agree. Keep in mind however, that the FED doesn't want zero inflation. They have a target more like 2% +/-. They are still fighting the last major war (The Great Depression) in which deflation proved to be as destructive (maybe more so) than inflation. YMMV

 

[Closet_Gamer]

We will see how that works out. I see that Apple is now tactfully making plans to move a lot of work out of China. Hmm.....

It helps to work in a job where you to touch whatever you work on - people, machines, buildings, etc. It's hard to ship those jobs overseas or even very far out of town.

China has definitely hit a new stage. So many companies are pulling things out of China.

 

[Winemaker]

Just drove from Pittsburgh to FT. Myers FL. Gasoline when I left was $3.99/g, saw $3.49, $3.19, $2.78 was the cheapest. After we flew back Friday, it's $3.79 in Pgh.

 

[aja8888]

Just drove from Pittsburgh to FT. Myers FL. Gasoline when I left was $3.99/g, saw $3.49, $3.19, $2.78 was the cheapest. After we flew back Friday, it's $3.79 in Pgh.

Pennsylvania has the highest state gas taxes in the nation at 57.6 cents per gallon!

 

[Dash man]

Pennsylvania has the highest state gas taxes in the nation at 57.6 cents per gallon!

California ($0.7095/gallon) and Illinois are higher than PA, but at least they have good roads.

 

[Koolau]

Pennsylvania has the highest state gas taxes in the nation at 57.6 cents per gallon!

California ($0.7095/gallon) and Illinois are higher than PA, but at least they have good roads.

Guess it depends on what site you check. This one https://igentax.com/gas-tax-state-2/#___Gas_tax_by_state__

Says Pennsylvania is higher. Dash man, are you including Federal tax as well?

Heh, heh, what ever it is - it's too much! (But YMMV.)

 

[audreyh1]

Drumroll for tomorrow’s CPI report…….

 

[CarbonaNotGlue]

These guys are predicting a drop to approximately 6.9%/7% for the CPI. Let’s see if they get it right

 

[JoeWras]

6.9%? Let's party! /sarc

 

[NW-Bound]

6.9%? Let's party! /sarc

We only have to grow our stash 6.9%/year to match inflation. Hoorah!

 

[audreyh1]

More like 7.1%, but close.

November CPI Report: 0.1 adjusted down from 0.4 in Oct, 12 months (unadjusted) 7.1% down from 7.7% in Oct.
https://www.bls.gov/news.release/pdf/cpi.pdf

6.9%? Let's party! /sarc

Well yeah, they definitely are! Equity futures very high and treasury yields have dropped across the board, most of them quite a bit.

 

[JoeWras]

I like looking at month over month.

MoM: 0.1% overall, core is 0.2%. The core reading is hugely important. This is absorbing 0.6%MoM on shelter, which is still running off last year's massive rise.

And why is core low when shelter is sticky? Well how about something like this: (drum roll, please) new vehicles are flat month over month.

New vehicles are 4% of the CPI. That's not trivial. New vehicles were going nuts at the start of the year (on over a 12% extrapolated pace) and really impacted the CPI. We haven't seen 0% in almost 2 years.

Digging deeper: new CARS are down, new TRUCKS slightly up. This reflects the fact that people don't like sedans. I've seen this in dealer inventory. Sedan inventory is starting to build on the lots. I still don't believe the auto dealers saying "we'll never deal again, shortages and ordering cars are forever." I call BS. Get back to me in 18 months on that.

 

[Taco]

Looks like the markets are going to be happy about it today.

 

[JoeWras]

Looks like the markets are going to be happy about it today.

Equity markets.

To all the people considering buying bonds but "waiting for the news," good luck.

 

[audreyh1]

Equity markets.

To all the people considering buying bonds but "waiting for the news," good luck.

Bond markets are happy about it too as yields have dropped, i.e. bonds have appreciated.

It’s folks waiting for yields to rise who are disappointed. Just like those waiting for stocks to go more on sale.

 

[JoeWras]

Bond markets are happy about it too as yields have dropped, i.e. bonds have appreciated.

It’s folks waiting for yields to rise who are disappointed. Just like those waiting for stocks to go more on sale.

Yes, I should have been clearer.

People holding bond funds (or balanced funds) should feel better.

 

[Fermion]

Bond markets are happy about it too as yields have dropped, i.e. bonds have appreciated.

It’s folks waiting for yields to rise who are disappointed. Just like those waiting for stocks to go more on sale.

I am not seeing this on the 2 year. My account shows the bonds are down, yield up.

 

[audreyh1]

Two year treasury yield has dropped 0.208%. That’s a big move for one day. Still early though.

 

[Big_Hitter]

To all the people considering buying bonds but "waiting for the news," good luck.

Or SPIAs

 

[CarbonaNotGlue]

Yes, inflation may still be excessively high at 7.1%, but the key takeaway is the precipitous downward trend, which indicates that we have passed peak inflation and may see 3-4% cpi by the end of 2023 if the trend continues. Of course, a lot can happen to deflect that trend, but this is unquestionably a good CPI print under the current circumstances. Markets are reacting accordingly.

 

[Montecfo]

More like 7.1%, but close.

November CPI Report: 0.1 adjusted down from 0.4 in Oct, 12 months (unadjusted) 7.1% down from 7.7% in Oct.
https://www.bls.gov/news.release/pdf/cpi.pdf


Well yeah, they definitely are! Equity futures very high and treasury yields have dropped across the board, most of them quite a bit.

The monthly figures (as you noted early, Audrey and thanks for the shout-out) are very encouraging.

The unadjusted index actually shows a DECLINE for November before seasonal adjustment. So if you model that and annualize the past five months, inflation is 1.4%. Same with the monthly, seasonally adjusted figures, which is more accurate:

July 0.0
Aug 0.1
Sept 0.4
Oct 0.4
Nov 0.1

Total 1.0 *12/5 = 2.4%

Another way of saying this is that Inflation as measured by the CPI has risen at a 2.4% annualized rate since June.

Now, the trend may not continue, but it is pretty well established.

This is good news for FIRE generally since it is good for stocks, but it means the quest for higher long rates may have peaked about 6 weeks ago.

 

[newtoseattle]

Do I understand this correctly? - Month over month inflation is only 0.1%. So wouldn't that project a yearly inflation of 1.2% - aka we are dropping too fast? Why would fed interest rates need to continue to rise? Hasn't it already "slowed down"?