Latest Inflation Numbers and Discussion

[FREE866]

Wow, that was quite a rally today!

Hell yeah! Nice to see small caps move too!


Funny, on days like today those famous technicians that go on CNBC--Carter Worth, Krasinsky, et al are nowhere to be found! yet, in October when we were having a pullback and close to a 10% correction ( which are totally normal and a feature of investing in stocks) they were all over the airwaves with "well, now that we broke the trendline, blah, blah blah " spewing gloom and doom

If you're an equity investor and if you’re a long-term investor, the biggest risk to reaching your goals likely isn’t a bear market. Stocks’ long-term annualized return of 10% includes bear markets! Bigger risk? Missing bull returns

 

[Northforker]

Price deflation on vehicles has been happening for quite some time.

Oh really? Got an example?

 

[Montecfo]

Oh really? Got an example?

Sure. Just look at the details to the CPI reports. They show vehicle prices have dropped.

 

[JoeWras]

I think I can safely assume that vehicle sales reflect the actual price to the customer which is shared with sales tax, vehicle registration etc. entities, and nothing to do with MSRP.

You are safe.

The BLS has an extensive discussion on this, including fancy mathematical formulas and language only a stats geek would enjoy.

In summary: it is based on transaction price, not MSRP. The transaction price is either obtained through dealer surveys, or JD Power information.

Seems simple, but amazingly, it isn't. BLS noticed that if they came up with a set of cars like: Camry, Equinox, Accord -- it didn't work well. Why? Well, they noticed that in year 1 of a Camry model, the price was higher than year 4, just before a design refresh. This model refresh model messed things up. So they account for that.

It is still a work in progress for BLS. Read here: https://www.bls.gov/cpi/factsheets/r-cpi-u-nv.htm

My favorite quote:

The research found that with the transaction data, monthly, matched model price indexes declined persistently even as average prices (unit price index) rose. The matched model indexes only show the price change for the same model year vehicle. When a new model year version of a vehicle is introduced, it is offered at a relatively high price. As the months pass, the price drops as dealers offer steeper concessions and manufacturers begin to offer more rebates and incentives. Linking these price drops together results in a steadily declining price index. The traditional CPI methodology also showed these declines, but offsets them by showing the price change from a vehicle’s end of life price to the early life price of its next model year replacement. The traditional CPI method did not perform well when applied to the transaction data since indexes were very sensitive to how these offsetting price changes were weighted.

...
[NERD ALERT] The twelfth-root of the relative is taken to scale the price change down to a monthly frequency. These relatives are then aggregated with a Tornqvist formula, which is consistent with the superlative index formula used at the all items level for the Chained Consumer Price Index (C-CPI-U).

 

[Montecfo]

More good news

The producer price index (PPI) declined a whopping 0.5% in October, and increased just 1.3% for the year, beating expectations, and down from 2.2% in September.

Core PPI (excluding food and energy) was flat (0.0%) for the month and registered a rise of 2.4% for the year, also beating expectations.

It is another optimistic report on inflation.

Wholesale prices fell 0.5% in October for biggest monthly drop since April 2020

https://www.cnbc.com/2023/11/15/who...or-biggest-monthly-drop-since-april-2020.html

 

[DJRR]

The producer price index (PPI) declined a whopping 0.5% in October, and increased just 1.3% for the year, beating expectations, and down from 2.2% in September.

Core PPI (excluding food and energy) was flat (0.0%) for the month and registered a rise of 2.4% for the year, also beating expectations.

It is another optimistic report on inflation.

Wholesale prices fell 0.5% in October for biggest monthly drop since April 2020

https://www.cnbc.com/2023/11/15/who...or-biggest-monthly-drop-since-april-2020.html

So if PPI is down and CPI is up does that mean that inflation is being caused by "greedy" corporations

Consumer spending is hanging in there while corporate margins should be improving. I think earnings will out perform despite the gloom and doom.

 

[Montecfo]

So if PPI is down and CPI is up does that mean that inflation is being caused by "greedy" corporations

Consumer spending is hanging in there while corporate margins should be improving. I think earnings will out perform despite the gloom and doom.

Inflation is moderating by all measures. Corporations are run to maximize profits, not to minimize inflation. Consumers reduce inflation by smart spending choices.

I think your comment about corporate profits is correct, as margins have held up well. We have been in an earnings recession for several quarters. If we grew in Q3 it was not much (I now see it was a positive 5%, a good sign).

If there is "gloom and doom" I missed it. The moderating interest rate environment should put a floor under stocks and I expect we will rally especially when the Fed begins to cut. But in the long-term earnings need to grow more robustly to support valuations and that is not happening recently.

 

[COcheesehead]

Where prices fell in 2023 in one chart.

 

[Koolau]

BLS. Read here: https://www.bls.gov/cpi/factsheets/r-cpi-u-nv.htm

My favorite quote:

[NERD ALERT] The twelfth-root of the relative is taken to scale the price change down to a monthly frequency. These relatives are then aggregated with a Tornqvist formula, which is consistent with the superlative index formula used at the all items level for the Chained Consumer Price Index (C-CPI-U).


IOW "Smoke and Mirrors!!"


Seriously, thanks for the site. Interesting reading.

 

[DJRR]

Inflation is moderating by all measures. Corporations are run to maximize profits, not to minimize inflation. Consumers reduce inflation by smart spending choices.

I think your comment about corporate profits is correct, as margins have held up well. We have been in an earnings recession for several quarters. If we grew in Q3 it was not much (I now see it was a positive 5%, a good sign).

If there is "gloom and doom" I missed it. The moderating interest rate environment should put a floor under stocks and I expect we will rally especially when the Fed begins to cut. But in the long-term earnings need to grow more robustly to support valuations and that is not happening recently.

I know. Thought it was clear I was being facetious.

Not you specifically, but lots of people on this board and others I follow were pissed off that NBER did not call a recession years ago and have constantly predicted calamity. Somehow we keep floating over the edge like Wil E Coyote despite all predictions of our imminent destruction. I have my own views of why that may be, but clearly something is going on that is different or our metrics are not the best for the changes we are experiencing. The economy is clearly strong to me, though maybe that is through a bifurcated lens.

 

[CaptTom]

Where prices fell in 2023 in one chart.

Click bait. So, eggs and energy are way down. Could that have anything to do with the fact that they spiked way up a little while ago? That isn't a trend, it's the downward side of a bubble.

 

[JoeWras]

So if PPI is down and CPI is up does that mean that inflation is being caused by "greedy" corporations

They both matter, and are at different points in the pipeline.

One or the other is not necessarily more important at a point in time.

One example:

PPI might show flat prices for steel. Meanwhile, the automobile unions negotiate a huge increase in wages. Therefore, automobile prices rise due to increasing wages, even though supplies coming in are flat or negative.

I make no comments on this. It just is what it is.

 

[Koolau]

I know. Thought it was clear I was being facetious.

Heh, heh, we have a lot of very serious people here - especially when the subject is inflation.

 

[COcheesehead]

Click bait. So, eggs and energy are way down. Could that have anything to do with the fact that they spiked way up a little while ago? That isn't a trend, it's the downward side of a bubble.

Still shows a factual.

 

[Montecfo]

I know. Thought it was clear I was being facetious.

Not you specifically, but lots of people on this board and others I follow were pissed off that NBER did not call a recession years ago and have constantly predicted calamity. Somehow we keep floating over the edge like Wil E Coyote despite all predictions of our imminent destruction. I have my own views of why that may be, but clearly something is going on that is different or our metrics are not the best for the changes we are experiencing. The economy is clearly strong to me, though maybe that is through a bifurcated lens.

Well, I still expect recession. So does the Fed. Maybe a soft landing but much lower growth and higher unemployment. This is already happening.

But the economy is not the same as the stock market.

Since you know all this I guess your posts are just some type of performance art?

Your "serious" post seemed to take a similar tack.

 

[Koolau]

Well, I still expect recession. So does the Fed. Maybe a soft landing but much lower growth and higher unemployment. This is already happening.

But the economy is not the same as the stock market.

Since you know all this I guess your posts are just some type of performance art?

Your "serious" post seemed to take a similar tack.

Obviously, I hope we're wrong, but I too am looking for a recession (also hoping for soft landing, but...)

 

[mikes425]

Frustration

Obviously, I hope we're wrong, but I too am looking for a recession (also hoping for soft landing, but...)

Nice to see the CPI and lower inflation figures but confounding to me is the fact that despite that news interest rates resumed their RISE today, particularly notable in TIPS funds as well as corporate bond and ST treasuries. Someone help me wrap my head around this seemingly inverted and illogical response by the bond market. My moderate-conservative PF has been throttled relentlessly by bond funds for two years running now...and it's just downright frustrating, because there literally seems to be no rationale to support why the signals this week would be a trigger for bond funds, to continue trending down in NAV.

 

[USGrant1962]

^^^

Medium and long-term rates are still well behind the curve (so to speak) compared to the Fed-driven short term rates. The yield curve is still inverted.

https://www.ustreasuryyieldcurve.com/

 

[COcheesehead]

Nice to see the CPI and lower inflation figures but confounding to me is the fact that despite that news interest rates resumed their RISE today, particularly notable in TIPS funds as well as corporate bond and ST treasuries. Someone help me wrap my head around this seemingly inverted and illogical response by the bond market. My moderate-conservative PF has been throttled relentlessly by bond funds for two years running now...and it's just downright frustrating, because there literally seems to be no rationale to support why the signals this week would be a trigger for bond funds, to continue trending down in NAV.

Bonds popped up tremendously in just a few days. Folks are taking profits. I sold a couple that jumped up.

 

[Montecfo]

Rates did not move up in a straight line. The path down is the same. We had a huge move down this week on CPI news. And the direction has been down since rates appeared to peak a few weeks ago.

But upward moves will still happen.

 

[JoeWras]

I see some of the bond action yesterday as a response to digesting the data.

On Tuesday, there is quick euphoria at exactly 8:30:01am when the numbers hit, and traders are going to trade before digesting the info to get ahead of everyone else.

As the days have worn on, they digest. The report is good, but maybe not so good. It doesn't look like a rate cut soon. Services are sticky. Health insurance is again being reported somewhat sanely, with a change in the method again! Auto services and insurance are hot.

And so on.

 

[Time2]

Where prices fell in 2023 in one chart.

Click bait. So, eggs and energy are way down. Could that have anything to do with the fact that they spiked way up a little while ago? That isn't a trend, it's the downward side of a bubble.

Has anyone seen a 34% reduction in their health Insurance?
I didn't any reduction, so someone must have got 68% reduction! YMMV

 

[DJRR]

Since you know all this I guess your posts are just some type of performance art?

Probably guilty I have a hard time interacting "correctly" on message boards. Most people don't get my sense of humor or think as highly of my opinions as I do Couple that with a career crafting response emails to let everyone else know that someone is being an ******* without them knowing, and there you go.

 

[Montecfo]

Probably guilty I have a hard time interacting "correctly" on message boards. Most people don't get my sense of humor or think as highly of my opinions as I do Couple that with a career crafting response emails to let everyone else know that someone is being an ******* without them knowing, and there you go.

At least we now know. And to your credit admitting it is the first Step.

And you aren't the first.

I suspect I'm supposed to ask you to elaborate on the last sentence.

 

[CaptTom]

Got a flyer from a credit union in yesterday's mail. 15 month CD was a lower rate than the 12 month CD. I guess that shows where they think rates are going.