Keeps The Inflation Gauge High
February 22, 2023
Weekly Market Outlook
By Keith Schneider and Donn Goodman
The Inflation Indicators – the CPI and PPI.
This past week both indicators were released. The analysts and the “market” had less trepidation given that the most recent few months have seen a significant decrease in both Consumer Price Index as well as the Producer Price Index (the latter being more about finished goods).
Both numbers came in hotter than expected.
Let’s begin with the most recent release on Thursday of the Producer Price Index (PPI). This was expected to come in at 0.5% and year over year at 5.9%. The numbers, however, came in higher at 0.7% and 6.0% YoY. This was a surprise to economists and to the market.
Last Tuesday (Valentine’s Day), the CPI was expected to come in at 0.4% for the month of January and 6.3% YoY. Instead, the number for January 2023 came in at 0.5% and 6.4% for 12 months (YoY). Food and energy also remained elevated.
Both the PPI and CPI numbers are not dropping as much as people had expected. AND THIS IS AFTER THE GOVERNMENT has been hard at work massaging the way the monthly numbers are calculated. See the chart below:
Folks, with all candor, there are two realities that one must understand.
- They are calculating the number using new methods. In truth, the rate of inflation is probably well over 8% and;
- These past 12-month numbers are ON TOP of a previous twelve-month number of greater than 8%. So in reality, we have seen at least 15%-20% inflation over the past 2+ years. THAT IS WHY EVERYTHING SEEMS SO EXPENSIVE. Food costs have likely tripled from pre-pandemic levels.
To get a better idea of how each input is contributing to the overall rate of inflation, one must look under the hood. You will notice that the two highest contributors and several in the top 10 list are all food related. See the chart below:
Click thru to continue reading on What Effect is all of this Having on the Markets? (clue…Tuesday rates broke out of a sideways channel and it took the wind out of the stock market)
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