Latest Inflation Numbers and Discussion

[Montecfo]

Meanwhile, the PCE deflator came in hot. Discussion of a 50 bp hike ramping up. If this continues, bonds may take out the rate highs of October.

Core PCE came in at 4.7%, up from an upeardly revised 4.6% in December. Economists expected 4.3%.

More evidence that the road to lower rates will be bumpy.

But also not a huge increase. But enough to hammer stocks, which should be hammered given equity pricing and earnings expectations.

 

[11522914]

Meanwhile, the PCE deflator came in hot. Discussion of a 50 bp hike ramping up. If this continues, bonds may take out the rate highs of October.

Core PCE came in at 4.7%, up from an upeardly revised 4.6% in December. Economists expected 4.3%.

More evidence that the road to lower rates will be bumpy.

But also not a huge increase. But enough to hammer stocks, which should be hammered given equity pricing and earnings expectations.

Definitely going to be a lot bumpier. This article explains it well.
https://wolfstreet.com/2023/02/24/s...since-1984-goods-jump-core-pce-red-hot-again/

"Not only did all the relevant measures get a lot worse in January, but the prior three months, October through December, were revised higher – much like the CPI inflation readings a couple of weeks ago – showing substantially greater inflation momentum at the end of the year than originally shown. The whole thing throws a lot of cold water on the “disinflation” hoopla."

 

[Sunset]

OUTBACK Steak House was pushing "gift cards" before X-mas. So DW and I bought each other enough gift cards to last the year. FF to last week. We just saw a brief article in the local paper that our local OBSH was ceasing business by end of the month. Well, cwap! We do have 2 other locations on Island, but neither is close nor convenient. So we thought we'd go Saturday to "burn" a couple of cards for lunch. Normal opening time is 11AM. So we get there at 11:20 and a few folks are hanging out on the porch. I was thinking, "everyone else must be burning their gift cards so there's a line." Nope! They had delayed opening until 12 Noon because they only had one cook that day!

So we tucked away our gift cards and will take them with us to the mainland where we're hopeful that labor sanity will prevail - but we've always been optimistic that way.

I got burned by a buffet place, where I had bought some giftcards, and they went Belly Up.

So now I limit my gift card purchases to $100 for a restaurant, as I'd rather miss out on a deal, than miss out on my money.

 

[ShokWaveRider]

I heard noises on Bloomberg yesterday that 50bps were not off the table for March due to persistent inflation, especially at the grocery stores. I still think it will be 25bps but it would be a nice windfall for us fixed income investors if it is.

 

[DJRR]

^^^^ Thanks! I can take no credit, because it was due to my job and, for him, volunteer service. Of course, had I known where he was going I would have kept in touch!

That's a better story. You ghosted the Federal Reserve Chairman

 

[atmsmshr]

Nearly absent from the US inflation news is China. For several decades, the US 'exported' its inflation (and manufacturing) to developing countries. Remember the term 'The China Price'? Now with shipping costs higher, the stalled/rising cost of Chinese labor, and start of decoupling of the USA economy for non-durable goods from China with reshoring manufacturing - will the Fed have a harder or easier time of taming inflation?

The Fed cooling domestic demand is one side of the equation, but the foreign supply side prices of goods is one element that may not abate as easily compared to 20-30 years ago when there was more manufacturing in the USA.

Am I missing something or are the pundits correct in ignoring the China factor?

 

[milford]

Nearly absent from the US inflation news is China. For several decades, the US 'exported' its inflation (and manufacturing) to developing countries. Remember the term 'The China Price'? Now with shipping costs higher, the stalled/rising cost of Chinese labor, and start of decoupling of the USA economy for non-durable goods from China with reshoring manufacturing - will the Fed have a harder or easier time of taming inflation?

The Fed cooling domestic demand is one side of the equation, but the foreign supply side prices of goods is one element that may not abate as easily compared to 20-30 years ago when there was more manufacturing in the USA.

Am I missing something or are the pundits correct in ignoring the China factor?

The decoupling process from China has actually been in process for the past 10 years as a good portion of non durable goods manufacturing has migrated to Vietnam, Bangladesh, India already and is still in process. I think a bigger factor is, are the days off cheap energy gone given the geopolitical instability currently in the world.

The fed's target inflation rate of 2% is going to be really tough to achieve unless there is a huge demand destruction.

 

[youbet]

a huge demand destruction.

Exactly what I'm pullin' for..........

 

[Montecfo]

Exactly what I'm pullin' for..........

It is exactly what I expect. Which is interesting for bonds but bearish for equities. Which is why I sold into the rally and expect to do more.

 

[atmsmshr]

The decoupling process from China has actually been in process for the past 10 years as a good portion of non durable goods manufacturing has migrated to Vietnam, Bangladesh, India already and is still in process. I think a bigger factor is, are the days off cheap energy gone given the geopolitical instability currently in the world.

The fed's target inflation rate of 2% is going to be really tough to achieve unless there is a huge demand destruction.

Agreed some decoupling has been done, but it is still cringeworthy to see how many products are made in China.

Indeed, cheap energy is gone - especially for natural gas fueled industries in Europe. Germany's manufacturing sector powerhouse is already on its economic knees.

I suspect that the Fed will readjust its inflation target rate upwards at some point when/if their strategy is not sustainable and unemployment gets horrendous. (a demand destruction symptom)

 

[aja8888]

Here's what going on in the Eurozone

https://wolfstreet.com/2023/03/02/i...ikes-to-record-services-cpi-spikes-to-record/

Inflation once it takes off and gets entrenched in the economy, has a tendency to dish up nasty surprises. It did that in the US for January and for December, it did it in Japan, and it did it in a super-nasty way in the Eurozone for February, based on data released today by Eurostat.

In the 20 countries that use the euro, the annual rate of the core Consumer Price Index – excludes energy products, such as gasoline, diesel, electricity, natural gas piped to the home, heating oil, etc. – spiked to a record 7.7%.

 

[Winemaker]

Aren't the monthly jobs reports released on first Friday of the month? I haven't seen anything about it today.

 

[MichaelB]

Aren't the monthly jobs reports released on first Friday of the month? I haven't seen anything about it today.

Release date is March 10 https://www.bls.gov/schedule/news_release/empsit.htm

 

[Marc]

Release date is March 10 https://www.bls.gov/schedule/news_release/empsit.htm

Followed by CPI on 14th and Fed Decision/dot plot on 22nd; will be an interesting couple of weeks.

 

[MichaelB]

Followed by CPI on 14th and Fed Decision/dot plot on 22nd; will be an interesting couple of weeks.

You got that right. Time to fasten the seat belts and prepare for a bumpy ride…

 

[audreyh1]

You got that right. Time to fasten the seat belts and prepare for a bumpy ride…

Or sleep through it? Yawn.

 

[Gumby]

I think the last three weeks in the market represent a recalibration of expectations back to a 50bps rise.

 

[Montecfo]

I think the last three weeks in the market represent a recalibration of expectations back to a 50bps rise.

Possibly.

But Atlanta Fed president on record for 25 bp. I think this is logical given such historically large rate hikes without giving them time to take effect.

https://www.cnbc.com/2023/03/03/sto...-on-renewed-hope-for-25-basis-point-hike.html

 

[explanade]

Some speculation that the jobs report could make the Fed go for 50 instead of 25 base points.

 

[EvrClrx311]

I think the markets are still trying to resolve the growing (or reinforcing -- for those who never expected rate cuts in 2023) point that rates are going to have to go to 6% or even 7%... regardless of .25 or .5 in this next meeting. I think the most recent rally that took us to 4150ish and above that 2022 down trendline (red line in the photo below) that held down SPY all year was broken because the markets hoped cuts would be coming this year (they aren't, IMHO). Eventually we'll be back under 3500 when that hits the mainstream ... I'm eyeing 3000-3200ish as a good entry to equities, a long term support line from 2009 that we got WAY too high above during the 10 year bull market run (see photo below for illustration). They markets got happy with being higher (historically) than they should be... that perception still hasn't popped. It'll be a bumpy ride, but I'm quite sure we'll hit that 3000ish zone before summer 2024. If it gets really ugly we'll break below it, but that's a great place to buy equities if you have a few years to sit on them.

The alternative (FED being too dovish, and messing up controlling inflation now) will lead to a lost decade in my opinion (very flat for the next 5-7 years overall). That would have us hitting the green line in a much further out time... 2027-2030 in the 4000ish range (where we are now).

 

[Koolau]

The decoupling process from China has actually been in process for the past 10 years as a good portion of non durable goods manufacturing has migrated to Vietnam, Bangladesh, India already and is still in process. I think a bigger factor is, are the days off cheap energy gone given the geopolitical instability currently in the world.

The fed's target inflation rate of 2% is going to be really tough to achieve unless there is a huge demand destruction.

It's true that the geopolitical issues have come at time when energy has become something of a dirty word - at least if it comes from FFs. So simply saying that we've changed our minds about FFs would likely crush energy prices before the first extra barrel or cubic foot was pumped - assuming people believed it. There are a lot of issues involved in inflation but IMHO, the easiest to address is energy (well simplest - maybe not easiest.) YMMV

 

[Jimonlimon]

The Core inflation rate (for those of you who don't eat and don't require the use of energy) was only about 6%.
...

Every household's inflation rate is different. Here are some data points from mine:

• Low Inflation:
• 0% Mortgage. Hasn't changed in 15 years and won't for another 15 unless we pay it off sooner.
• 2% Property taxes. Limited to 2% increase by Prop 13.
• ? Food. We eat expensive organic and free range food until it gets crazy expensive. $8/doz eggs haven't gone up much in the past year. I don't think our food costs have increased much but we may be substituting lower-priced options.
• $0, 0% Electricity. We broke even on our solar power installation 2 years ago and have another 13 years under our net-metering contract. We haven't paid for electricity in 7 years.
• Gasoline. We live in Southern California where $5 gasoline isn't a new thing. We don't drive much and when we take long trips get about 35 mpg.
• 0% College expenses for the two kids haven't changed much as their scholarships cover most of their tuition.
• 0%, +$$$ Travel. We have been traveling a fair amount so are spending more money, but haven't seen too much inflation for airfare or hotels because we really work hard to find deals. Rental cars were crazy expensive 2 years ago but seem to be coming down. I guess my point with travel is we have a set amount of money and adjust the travel to fit- so we don't spend more if it costs more, we just go less or go cheaper.
• High inflation:
• +400% natural gas prices since October. Hopefully a blip but it is pushing up my timeline for replacing the 24 year old natural gas furnace and AC with a heat pump.
• +20% Restaurant prices. Between increased food costs, increased salaries here in California, and probably trying to catch up from pandemic-related losses I see much higher restaurant meal prices. We definitely eat out less. When we travel we limit restaurant meals.
• ++%Personal services, mechanics, etc. We don't spend a lot on having other people do stuff for us, but prices are definitely higher.

I'm not sure about my point... With the 3% pay raise I got last year we don't feel any more or less broke than normal.

 

[Montecfo]

Nat gas prices in the spot market have plunged. So hopefully relief soon there.

 

[JoeWras]

Gasoline has leveled out. Used car prices are creeping back up.

 

[Montecfo]

Yield curve inversion reached a record yesterday, over 103 basis points between the 2 and 10 year treasury yields.

Strong recession predictor.

And interesting how long rates barely budge as Fed hikes.