“A long-awaited crest may be here”
The facetious answer to the above fill-in-the-blank relates to the eponymous “fat lady”, and she may have already sung for inflation, depending on who you ask. As this article from Reuters explains, even though inflation hit another multi-decade record this past week, there were some reasons to believe the worst had passed. As quoted in the article, Lael Brainard had some confidence that the Fed would be “successful in achieving” its 2% inflation target thanks to declining month-on-month inflation. Additionally, the much-watched used vehicle component did not just slow its rate of increase but even broke into negative territory, as presaged by the latest Manheim report.
There are, however, some important counterpoints to note, and inflation may be following the other answer of “It ain’t over until it’s over”. As the Reuters article further highlights, “price increases have broadened to services as well as goods”, and some of the industries that were hard hit at the beginning of the pandemic “have seen prices accelerate”. The broad-based nature of ongoing inflation is further supported by the latest Median CPI data from the Cleveland Fed, where Median CPI itself came in at 4.9%, and its “trimmed-mean” metric hit 6.1%, both of which “can provide a better signal of the underlying inflation trend” than CPI or Core CPI thanks to the omission of outliers. The latest NFIB data also indicates strong ongoing price pressures, with inflation taking the top spot as respondents’ biggest problem and a net 72 percent of respondents reporting that they raised selling prices, a series record.
If the above weren’t enough, headlines continue to highlight potential sources of inflation in food and agriculture markets. Nearly 5% of US egg-laying hens and a total of more than 27 million birds in domestic flocks have died from Highly Pathogenic Avian Influenza. Additionally, amid rising fertilizer prices, problems with logistics could cause added headaches. Fertilizer manufacturer CF Industries recently warned some of its customers of shipment delays after Union Pacific mandated shipping reductions, potentially affecting fertilizers and diesel exhaust fluid (ah, DEF).
P.S. With the post of the latest Cass shipping data, Freightwaves is ramping up its warning. Though Cass’s report said that it was currently seeing signals of a correction and that “it is too early to call it a freight recession”, Freightwaves followed on its previous articles by warning that “truck drivers are facing another blood bath”.
P.P.S. Rather than waiting for things to end or waiting for the “fat lady” to do her singing, Japanese companies are instead crying uncle. Facing an increasingly anemic Yen (discussed here), manufacturers are raising prices amid rising input costs and warning that currency weakness will cause a “hit to earnings” and could “lead to constraints on consumption and capital spending”.
Looking for more MI2? Check out Julian’s most recent podcast interview on Opto Sessions titled “Recession, Red-Hot Inflation, & How to Make Calm Out of Chaos”
