Has inflation peaked? Three signs that prices could soon fall

A gallon of gasoline costs about double what it cost in January 2021. Home prices rose 19.8% year-over-year in February. And, in March, groceries cost 10% more than a year earlier.

Fortunately, some analysts believe that the burden may soon ease and we have reached an inflationary peak.

This week, the Federal Reserve will meet and likely announce its intention to raise interest rates, a tool used to fight runaway inflation. However, investors fear that the accelerating pace of interest rate hikes could push the economy into recession.

Ryan Detrick, chief market strategist for LPL Financial, thinks it’s likely that inflation has already peaked on its own and the Fed could start cutting interest rates by the second semester.

The core personal consumption expenditure index, which the Federal Reserve watches closely to gauge the price of goods and services, rose 5.2% in March, excluding food and energy prices, below economists’ expectations and down on a monthly basis for the first time since October 2020.

UBS analysts also said this month that they expected inflation to likely peak in March and then fall “sharply.”

Detrick points to three key economic indicators for this belief: a drop in used car prices, a lack of “sticky” inflation, and a relative easing of supply chain chaos (though Covid-related shutdowns in China could put an end to it).
Chip shortages caused by supply chain issues and Russia’s invasion of Ukraine have made it very difficult to get a new car, and prices for used cars and trucks have risen. increased accordingly. In February, the price of a used car rose about 45% year over year, according to the Manheim Used Car Value Index. But it has since come down to around 25%. Two months of declines show that used car prices, which account for 4% of the consumer price index, could finally return to pre-pandemic levels.
The Federal Reserve Bank of Atlanta divides inflation into two categories: sticky and flexible. Sticky inflation is a basket of goods whose price tends to change more slowly and permanently, such as the cost of education, public transport and car insurance. Flexible inflation includes items that rise and fall in cost faster: gasoline, clothing, milk, and cheese.

During the stagflation of the 1970s, both hard and soft inflation rose. But so far, hard inflation has remained relatively stable relative to flexible inflation, a good sign that this may still be temporary.

Of course, it could take some time for persistent inflation to catch up, but Detrick says he’s optimistic. Flexible inflation is like a rubber band, he said, you can stretch it far enough and it will still come back.

And while the shutdowns in China may hurt the global supply chain, it looks like the problems are easing – at least for now. If businesses can easily get more supplies, material prices go down and consumers won’t be charged as much for goods and services, Detrick said.

According to data from LPL Financial, shipping rates from Shanghai to Los Angeles, New York and Rotterdam are down 28% on average from last year’s peak. The reliability of container ship schedules also continues to improve, according to new data from analytics firm Sea-Intelligence. March also marked the third consecutive month of declines in average container ship delays.

The drop in inflation could therefore be sudden, especially for durable goods, Detrick said. Still, he warned, it’s hard to tell if we’re seeing light at the end of the tunnel – or an oncoming train.

Buffett and Munger’s Big Day

Investors flocked to Omaha this weekend for Berkshire Hathaway’s annual meeting of shareholders, the first since 2019.

There, they watched market gurus Warren Buffett and Charlie Munger comment on the state of the economy and the stock market. They also enjoyed the treats provided by Berkshire-owned See’s Candies and Dairy Queen, reports my CNN Business colleague Paul R. La Monica.

Between all the ice cream cones and toffees, Berkshire revealed on Saturday that it bought more than $51 billion worth of stock in the first quarter of 2022, even though Buffett described his current investing mood as “lethargic.”

More than $3 billion came from their own stock, but other big names included Chevron, Apple, Bank of America and American Express. Together, these four stocks represent about two-thirds of the fair value of Berkshire’s nearly $388 billion portfolio.

Charlie Munger took to his platform on Saturday to speak out against bitcoin and the cryptocurrency, which he compared to a “venereal disease” earlier this year.

Munger said Saturday that if an investment adviser wants you to put retirement money into bitcoin, “Just say no,” in an apparent jab at Fidelity’s recent announcement that it plans to let investors buy bitcoin. bitcoin for their 401(k) accounts.
He also attacked what he called a “disgusting” increase in gambling attitudes towards investing, popularized by meme actions. Munger said the recent “unraveling” of online trading platform Robinhood’s stock price was “some justice”.

Following

Monday: ISM manufacturing; Building expenses; Earnings from Foxconn and Clorox

Tuesday: Job Vacancies and Labor Turnover Survey (JOLTS); Factory orders; Earnings from Match Group, Starbucks, Lyft and Airbnb

Wednesday: ADP employment report; FOMC statement; Fed Chairman Jerome Powell’s press conference; Gains from CVS, Dine Brands, Applebee’s, Yum Brands and Uber

Thusday: Weekly jobless claims; Mortgage rates; Earnings from Budweiser APAC and Kellogg’s

Friday: April jobs report; Earnings from Under Armor and Draft Kings

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