NEW YORK (CNN Business) Inflation is at a 40-year high and Americans are feeling it.
A gallon of gas is about double what it was in January 2021. Home prices rose a whopping 19.8% year over year in February. And in March groceries cost 10% more than a year earlier.
Luckily, some analysts think the strain may ease soon and that we have reached a peak in inflation.
This week, the Federal Reserve is due to meet and is likely to announce plans to raise interest rates, a tool to combat rampant inflation. However, investors fear that an acceleration in rate hikes could push the economy into recession.
Ryan Detrick, chief markets strategist at LPL Financial, thinks it’s likely that inflation has already peaked and that the Fed could start cutting rates in the second half of the year.
The core index of personal consumption spending, which the Federal Reserve monitors closely to measure the price of goods and services, grew 5.2% in March, excluding food and energy prices, falling below economists’ expectations for the first time on a monthly basis since October 2020.
Analysts at UBS also said this month that they expect inflation to peak in March and then fall “sharp”.
Detrick points to three key economic indicators for this belief: a fall in used car prices, a lack of “fixed” inflation, and a relative easing of supply chain chaos (although China’s Covid-related shutdowns may put an end to that).
The chip shortage caused by supply chain kinks and the Russian invasion of Ukraine has made it very difficult to get a new car, and used car and truck prices have skyrocketed accordingly. In February, the price of a used car rose about 45% year over year, according to the Manheim Used Car Value Index. But now it’s only about 25%. Two months of decline shows that used car prices, which make up 4% of the CPI, may finally be returning to pre-pandemic levels.
The Federal Reserve Bank of Atlanta divides inflation into two categories: fixed and flexible. Sticky inflation is a market basket that tends to change in price more slowly and permanently, e.g. B. the cost of education, public transport and car insurance. Floating inflation includes items that rise and fall in cost more quickly: Gasoline, Clothing, Milk, and Cheese.
During stagflation in the 1970s, both fixed and flexible inflation grew. But so far, rigid inflation has remained relatively flat compared to flexible inflation, a good sign that this could still be temporary.
Of course, sticky inflation could take some time to catch up, but Detrick says he’s optimistic. Flexible inflation is like a rubber band, he said, you can stretch it quite a bit and it will still snap back.
And while shutdowns in China could hurt the global supply chain, problems appear to be easing — at least for now. When companies can easily source more supplies, material prices drop and consumers are billed less for goods and services, Detrick said.
Shipping rates from Shanghai to Los Angeles, New York and Rotterdam are down an average of 28% from their peak last year, according to data from LPL Financial. According to new data from the analysis company Sea-Intelligence, the reliability of the schedule for container ships is also improving. March also marked the third consecutive month of declines in average delays for container ships.
The drop in inflation could be sudden as a result, particularly in durable goods, Detrick said. Still, he warned, it’s hard to tell if we’re seeing the 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 shareholder meeting, its 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 sweet treats from Berkshire-owned See’s Candies and Dairy Queen, reports my CNN Business colleague Paul R. La Monica.
Between all the ice cream cones and caramels, Berkshire announced Saturday that it bought more than $51 billion worth of stock in the first quarter of 2022, though Buffett described its current investing sentiment as “lethargic.”
More than $3 billion of that was its own stock, but other big names included Chevron, Apple, Bank of America, and American Express. Together, these four stocks make up about two-thirds of the fair value of Berkshire’s nearly $388 billion portfolio.
Charlie Munger used his platform on Saturday to speak out against bitcoin and cryptocurrency, which he likened to an “STD” earlier this year.
Munger said on Saturday that if an investment advisor wants you to invest your retirement money in bitcoin, “just say no,” in a nod to Fidelity’s recent announcement that it plans to allow investors to buy bitcoin for their 401(k) accounts to let.
He also attacked what he called a “disgusting” surge in gambling-like attitudes toward investing that’s been popularized by meme stocks. Munger said the recent “unraveling” in online trading platform Robinhood’s stock price was “somewhat justified.”
Next
Monday: ISM manufacturing; construction expenses; Foxconn and Clorox earnings
Tuesday: Job Vacancy and Labor Turnover Survey (JOLTS); factory orders; Earnings from Match Group, Starbucks, Lyft and Airbnb
Wednesday: ADP Employment Report; FOMC Statement; Fed Chair Jerome Powell’s press conference; Earnings from CVS, Dine Brands, Applebee’s, Yum Brands and Uber
Thursday: Weekly Jobless Claims; mortgage interest; Budweiser APAC and Kellogg’s revenue
Friday: job report April; Earnings from Under Armor and Draft Kings