Latest Inflation Numbers and Discussion

[newtoseattle]

Oops - Montecfo was posting as I typed last question. I think we are saying the same thing?

 

[Montecfo]

Oops - Montecfo was posting as I typed last question. I think we are saying the same thing?

I think we are, yes, the recent trend has been very positive.

Now, not surprisingly, the Fed's analysis will be more rigorous, projecting pricing trends for individual categories as well as just containing far more information than we have. They also remain very concerned about wage inflation, which can have an outsized effect on pricing and consumer psychology. So they want to tamp that down.

Also, JPowell does not want to but the new "Arthur Burns" and quit the inflation fight before it is over. But I suspect a pause could be in order and I think the Fed dot plot could now reflect some declines into 2024.

 

[audreyh1]

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"?

No, because those monthly comparison numbers are seasonally adjusted plus are very volatile so you can’t go by one month alone. I’ve been looking at prior 6 months using inflationdata.com cumulative inflation calculator and then doubling that to annualize. They haven’t updated for today's CPI yet.

It takes a long while for the ship to turn around. At least it’s turning the right way now. Hope it keeps going that direction, the smoother the better!

 

[NW-Bound]

I took advantage of the exuberant jump at market open to make 17 option trades.

The market has already petered out. Some stocks that jumped up the most are now in the red. I don't own these bubbly stocks, but look to gauge the market sentiment.

Would have sold more calls and closed out more puts, but I enter trades by hand and take my time to double check each deliberate move, and the market moves fast. It's OK. Making some cash is better than none.

 

[audreyh1]

Yeah, that big equity jump faded fast. Still holding most of the good drop on the treasury yields.

 

[NW-Bound]

Just added 3 more option trades to make it a nice even 20 trades.

I am taking a break now to go out to check on the backyard garden to see how the winter veggies are doing. Once they take roots, boy, they grow fast. Gotta keep an eye on aphids and caterpillars.

 

[JoeWras]

Yes, we can look at 0.1% and extrapolate 1.2%, but man, that's dangerous. There's a whole lot going on.

The big one is real estate (shelter). Taking out shelter, inflation would be negative. But that's a dangerous game.

The other thing is to ignore the supply problems and wage/unemployment issues.

Finally, of course, is energy and food.

It is very complex.

My gut feel is things are better, but... Wages and employment continue the pressure. Shelter will get better, but not crater. And supply will continue to irritate, even though automobiles show a flat month-over-month. I'm not sure we'll see a lot of drop on new vehicles. The drop on used will continue for a while, but new might be flat or drift down, but not crater.

 

[cyber888]

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

It was great this morning, then it gave up some gains. Some were definitely selling on the good news. Hope we have some more upside this week.

 

[audreyh1]

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"?

No, because those monthly comparison numbers are seasonally adjusted plus are very volatile so you can’t go by one month alone. I’ve been looking at prior 6 months using inflationdata.com cumulative inflation calculator and then doubling that to annualize. They haven’t updated for today's CPI yet.

It takes a long while for the ship to turn around. At least it’s turning the right way now. Hope it keeps going that direction, the smoother the better!

OK, inflationdata.com is updated now. I get 1.85% for inflation over the last 6 months. Annualized that is 3.7%.* Way under the actual last 12 months of 7.1%, but the Fed is not going to stop raising rates until inflation is even lower for a reasonable period, and then pausing may still keep rates high for a long period. There are a lot of moving parts and the Fed knows better than to let up fighting inflation too early.

We’ll see what the Fed decides to tell us tomorrow.

*6 months May through October inclusive inflation was 3.08% which annualized was 6.16%, lower than the actual 12 month inflation through October of 7.7%, but not nearly as big a comparitive drop as we saw today (through Nov).

 

[DJRR]

OK, inflationdata.com is updated now. I get 1.85% for inflation over the last 6 months. Annualized that is 3.7%.* Way under the actual last 12 months of 7.1%, but the Fed is not going to stop raising rates until inflation is even lower for a reasonable period, and then pausing may still keep rates high for a long period. There are a lot of moving parts and the Fed knows better than to let up fighting inflation too early.

We’ll see what the Fed decides to tell us tomorrow.

So, if they raise rates .5% tomorrow as expected that puts the Fed funds rate higher than the annualized inflation rate of the last 6 months. Think that is an important turning point and hopefully signals the end of this inflationary cycle. Will be interesting to see if they plan to pause and see or keep going in Q1 2023.

 

[NW-Bound]

I agree with this article on Bloomberg:

The Federal Reserve is poised to moderate its aggressive tightening on Wednesday while signaling that interest rates will ultimately go higher than previously forecast.

The tricky part for Chair Jerome Powell will be convincing investors that this isn’t a dovish pivot and that officials won’t prematurely end their assault against inflation that’s running three times higher than their 2% goal.

 

[Montecfo]

OK, inflationdata.com is updated now. I get 1.85% for inflation over the last 6 months. Annualized that is 3.7%.* Way under the actual last 12 months of 7.1%, but the Fed is not going to stop raising rates until inflation is even lower for a reasonable period, and then pausing may still keep rates high for a long period. There are a lot of moving parts and the Fed knows better than to let up fighting inflation too early.

We’ll see what the Fed decides to tell us tomorrow.

*6 months May through October inclusive inflation was 3.08% which annualized was 6.16%, lower than the actual 12 month inflation through October of 7.7%, but not nearly as big a comparitive drop as we saw today (through Nov).

The last 5 months is even lower at 2.4% since the peak in June. Will be interesting to see if the trend holds. They will also be looking for more consistency in the numbers.

 

[Montecfo]

I agree that convincing investors that he has not once again turned dovish will be Powell's challenge. If it is like last time, his rhetoric will be hawkish but the release will sound dovish and investors will have a roller coaster ride-as it has been all year.

I do not agree that inflation is running 3X higher than the 2% Fed goal. The core PCE Deflator which is what the Fed targets was at 5.0% YOY in October. November figures will be reported later this month-hopefully showing a decline but the index has been less volatile than CPI.

It increased just .2% in October, month over month.

 

[Koolau]

Yes, I should have been clearer.

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

Yeah, just looked at my statement today and my V Intermediate term bond index fund has been positive. Who knew?

 

[audreyh1]

So, if they raise rates .5% tomorrow as expected that puts the Fed funds rate higher than the annualized inflation rate of the last 6 months. Think that is an important turning point and hopefully signals the end of this inflationary cycle. Will be interesting to see if they plan to pause and see or keep going in Q1 2023.

Do you think they’d admit any plan to pause in advance?

The Fed knows from past history how entrenched inflation can become which is why they became so aggressive once they finally realized they were way behind the curve (pun intended).

The last 5 months is even lower at 2.4% since the peak in June. Will be interesting to see if the trend holds. They will also be looking for more consistency in the numbers.

Yeah, that’s the challenge - seeing if the trend holds. Agree they need to see consistency.

 

[audreyh1]

Yeah, just looked at my statement today and my V Intermediate term bond index fund has been positive. Who knew?

Bond funds have been rallying since mid October.

 

[explanade]

Fed raised the rate by .5% as expected and apparently signaled that they would continue raising rates through next year.

Stock market which had been up almost immediately turned down.

 

[Montecfo]

Had the rally yesterday. Lots of money waiting to jump in but Fed would have to be more docile.

And the inversion continues.

 

[Koolau]

Bond funds have been rallying since mid October.

Heh, heh, so you can see how often I look - only when I get a statement!

 

[JoeWras]

I'm seeing a trend in labor easing

OK, I'm not the BLS. I'm an anecdote. Take that for what it is.

In my little world, I'm seeing a very clear trend of easing of the employment shortages.

This hit me like a ton of bricks last night when we were at our local NHL arena. Over the last month, we've seen services at the arena improve dramatically. More parking attendants, more ticket takers, and fully staffed concession stands. During the worst of the employment crisis last spring, 1/3 of the concession stands were closed. This was during NHL playoffs with record hungry crowds! There was no way management desired that. Would you give up easily selling $15 beers and $10 hot dogs? I didn't think so.

Before the game, our habit is to go to Chipotle and get a better quality meal for 1/4 the price. Chipotle has taken down their weekly interview posters. More importantly, they opened up a second counter for take out. It was running smoother than I've seen it move in ages. Fully staffed. No shortage signs either, which were chronic. (No peppers today, no soda, blah, blah.)

Finally, on my great day yesterday, it started with a fully staffed city pool. Full lifeguard stands. This makes for a great lap swim since they can open up all 20 lanes and not force us into 9 lanes with one guard. Ever split a lane with "Mark Spitz" next to you doing his 8' wingspan butterfly? Stinks. Last spring, they even closed the pool 3 days a week because there were no guards. We've seen fully staffed guard stands for 1 month now.

So the Fed is waiting for employment to ease. I'm seeing it in my world. I think we'll start seeing it in the numbers. Once the Fed sees the trend, I think they will slam the brakes on rate rises and maybe even roll back.

 

[Koolau]

OK, I'm not the BLS. I'm an anecdote. Take that for what it is.

In my little world, I'm seeing a very clear trend of easing of the employment shortages.

This hit me like a ton of bricks last night when we were at our local NHL arena. Over the last month, we've seen services at the arena improve dramatically. More parking attendants, more ticket takers, and fully staffed concession stands. During the worst of the employment crisis last spring, 1/3 of the concession stands were closed. This was during NHL playoffs with record hungry crowds! There was no way management desired that. Would you give up easily selling $15 beers and $10 hot dogs? I didn't think so.

Before the game, our habit is to go to Chipotle and get a better quality meal for 1/4 the price. Chipotle has taken down their weekly interview posters. More importantly, they opened up a second counter for take out. It was running smoother than I've seen it move in ages. Fully staffed. No shortage signs either, which were chronic. (No peppers today, no soda, blah, blah.)

Finally, on my great day yesterday, it started with a fully staffed city pool. Full lifeguard stands. This makes for a great lap swim since they can open up all 20 lanes and not force us into 9 lanes with one guard. Ever split a lane with "Mark Spitz" next to you doing his 8' wingspan butterfly? Stinks. Last spring, they even closed the pool 3 days a week because there were no guards. We've seen fully staffed guard stands for 1 month now.

So the Fed is waiting for employment to ease. I'm seeing it in my world. I think we'll start seeing it in the numbers. Once the Fed sees the trend, I think they will slam the brakes on rate rises and maybe even roll back.

I think you are right. Our Condo finally has a full staff of maintenance folks again. They are going to town on sidewalk cleaning, tree trimming and other deferred maintenance. For a while there, we were seeing folks come and go as they (apparently) realized that they were expected to hustle a little bit. Apparently, part of our 9% HOA dues is going to upping salaries for our folks.

I noticed that our Panda Express now has full staff again as does Olive Garden. It's beginning to look like the good old days. I hope so. I hope it means we can get past the inflation without a major slow down. I hope.... I hope....

 

[audreyh1]

If businesses finally caved and realized they have to pay more for workers, that would explain finally seeing adequate staffing. That also explains how labor is contributing to inflation via wage increases.

 

[Koolau]

If businesses finally caved and realized they have to pay more for workers, that would explain finally seeing adequate staffing. That also explains how labor is contributing to inflation via wage increases.

I'm sure you are right. Having said that, costs here are up enough that no one is keeping up with inflation - especially for services. YMMV

 

[MichaelB]

If businesses finally caved and realized they have to pay more for workers, that would explain finally seeing adequate staffing. That also explains how labor is contributing to inflation via wage increases.

Exactly.

 

[Montecfo]

If businesses finally caved and realized they have to pay more for workers, that would explain finally seeing adequate staffing. That also explains how labor is contributing to inflation via wage increases.

The COVID crisis is over, yet the government is still sending out enhanced food stamps to folks as if the crisis continues.

This and the rest of the $1.7T of government supplied cash on personal balance sheets is allowing folks, but especially young people in greatest numbers, to remain out of the workforce.

Businesses having the outspend government just results in inflation, a bad deal for everyone. And it drives businesses to invest in automation which is happening.