U.S. Inflation Rate Accelerates to 7.5%, a 40-Year High Strong consumer demand and pandemic-related supply constraints continued to push up prices in January.
(…) Prices were up sharply in January for a number of everyday household items, including food, vehicles, shelter and electricity. A sharp uptick in housing rental prices—one of the biggest monthly costs for households—contributed to last month’s increase. (…)
January’s continued acceleration increased the likelihood that Federal Reserve officials could speed up a series of interest-rate increases this spring to ease surging prices and cool the economy. (…)
Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said what started as pandemic-specific inflation has now “broadened out across many, many categories both on the goods side of the economy and on the services side.” (…)
Prices for autos, household furniture and appliances, as well as for other long-lasting goods, continue to drive much of the inflationary surge, fueled by pandemic-related supply-and-demand imbalances. Most economists expect the dynamic to fade as businesses adapt and demand normalizes. But it isn’t clear when supply snarls will ease enough to take pressure off prices, particularly because of recent disruptions from the Omicron variant of Covid-19. (…)
That narrative negates the reality that inflation has now creeped everywhere and is accelerating just about everywhere:
BTW, in the above chart, the light blue line is my CPI-Essentials (food, energy, shelter, weighted)
Drilling down:
Core Goods: January: +1.0% MoM (+12.1% a.r.); last 3 months: +13.0% a.r.; YoY: +11.7%
Services: January: +0.6% MoM (+7.3% a.r.); last 3 months: +5.3% a.r.; YoY: +4.6%
Core Services: January: +0.4% MoM (+4.9% a.r.); last 3 months: +4.5% a.r.; YoY: +4.1%.
Rent of Primary Residence: January: +0.5% MoM (+6.1% a.r.); last 3 months: +5.3% a.r.; YoY: +3.8%.
Owners’ Equivalent Rent: January: +0.4% MoM (+4.9% a.r.); last 3 months: +4.9% a.r.; YoY: +4.1%.
All items less food, shelter and energy: January: +0.8% MoM (+9.8% a.r.); last 3 months: +8.2% a.r.; YoY: +7.2%.
All items less food, shelter, energy and used cars and trucks: January: +0.7% MoM (+8.5% a.r.); last 3 months: +6.1% a.r.; YoY: +5.1%.
This last series removes 58% of the CPI, stuff we need to simply function but that many elect to exclude. They are up 7.0% YoY and 7.3% a.r. in January. Everything else is up 5.1% YoY and 8.5% a.r. in January.
Can we stop trying to find transitory culprits already?
Lastly, the 16% Trimmed-Mean CPI, which remove the outliers at both ends, is up 7.9% YoY in January after raising so many hopes in November and December:
The key is not goods inflation which will surely, eventually, abate (from a higher than expected level) as supply increases and demand wanes. The inflation cancer is in services (61% of the CPI) where prices are essentially tied to labor and energy costs and never decline:
CPI-Services inflation reached 4.6% in January, its highest level since 1990, and is totally in sync with labor cost inflation now in the 4-5% range and rising:
This last chart plots the same data above but on a QtQ basis to better illustrate the strong pull of rising labor costs on services prices. The lines end at Q4’21. The black dot is where the 3 months ending in January 2022 are (+5.3% a.r.) and the red dot where January times 3 would be (+7.1% a.r.).
After the close yesterday, the Atlanta Fed published its wage growth tracker, +5.1% overall in January, +5.7% for hourly wages.
Job switchers continue to show the way, up 5.8%, but job stayers are increasingly being taken care of: their January wags grew 4.7%, up from 3.2% last July.
In the U.K.:
Starting salaries continue to rise at near-record pace amid sharper drop in candidate supply The latest KPMG and REC, UK Report on Jobs survey signalled a further steep increase in hiring activity at the start of 2022.
Inflation Heightens Fed Debate Over Pace of Rate Rises The question facing Fed officials ahead of next month’s policy meeting is no longer whether they will raise interest rates to ease surging prices and cool the economy, but rather by how much.
(…) Expectations of a larger March rate increase ratcheted higher twice on Thursday—first when the Labor Department reported that consumer prices rose in January by a somewhat larger margin than economists had anticipated, and later when a regional Fed president said the stronger inflation data would justify the greater rate increase. (…)
St. Louis Fed President James Bullard said in an interview Monday that he didn’t think the larger rate increase was warranted.
“We don’t want to be disruptive or surprising markets…I would like to do this in the smoothest way possible, and we, so far, have achieved that,” he said, adding that he would change his view “if the data went against us here.”
But Mr. Bullard suggested Thursday that he was open to a half-point increase in March or to raising interest rates in between the scheduled policy meetings.
“We are going to have to be far more nimble and far more reactive to data,” he told Bloomberg News. “There was a time when the committee would have reacted to something like this to having a meeting right now and [raising rates] right now.” (…)
- Goldman Sachs Group Inc. now sees seven 25 basis points hikes in 2022, one for every meeting left in the year. Traders are also pricing close to even odds of a 50 basis points move at the March meeting.
We [GS] see the arguments for a 50bp rate hike in March. The level of the funds rate looks inappropriate, and the combination of very high inflation, hot wage growth, and high short-term inflation expectations means that concerns about falling into a wage-price spiral deserve to be taken seriously. We could imagine the FOMC concluding that even a meaningful risk of an outcome as serious as a wage-price spiral requires a more aggressive and immediate response.
- Bank of Mexico Raises Interest Rates Sixth Straight Time The Bank of Mexico kicked off 2022 with its sixth consecutive interest-rate increase, citing rising near-term inflation expectations and tightening monetary conditions across the world.
Mortgage Rates Hit 4.0% For First Time Since May 2019
(…) Looking back at previous periods with similar increases in mortgage rates – like in 2013 when mortgage rates increased from 3.4% to 4.5% from May to July – new home sales fell from about 440 thousand per month to about 390 thousand per month. This was a decline of about 10%.
There was a similar decline in 1994 when rates increased from 7.2% to 8.4%, and new home sales fell from around 730 thousand to 650 thousand. And in 2018, rates increased from around 4.0% to 4.9%, and new home sales declined from around 650 thousand to 590 thousand.
There are other periods when rates increased – like in 1999 – and new home sales only declined slightly. (…)
OPEC Supply Issues Risk Heightening Oil-Market Volatility Chronic oil-supply issues among a group of major producing nations threaten to increase tightness and volatility in the energy market and push prices higher still, the International Energy Agency said.
(…) The cartel’s supply lagged behind its targets by 900,000 barrels a day last month, compared with a shortfall of 790,000 barrels a day in December. Its supply issues have resulted in 300 million barrels of oil effectively lost from the market since the start of 2021, the IEA said. (…)
“Chronic underperformance by OPEC+ in meeting its output targets and rising geopolitical tensions have propelled oil prices higher,” the IEA said, in its report. “If the persistent gap between OPEC+ output and its target levels continues, supply tensions will rise, increasing the likelihood of more volatility and upward pressure on prices.”
While supply issues have beset OPEC members such as Nigeria, Angola, and Malaysia, larger members in the Middle East, such as Saudi Arabia and the United Arab Emirates, have room to compensate should they choose to. (…)
Oil inventories in the wealthier nations that make up the Organization for Economic Cooperation and Development slumped by 60 million barrels in December, to 2.68 billion barrels, their lowest level in seven years, the IEA said. Preliminary data suggested stocks had fallen a further 13.5 million barrels in January. (…)
Additional supply this year could come from Iran, should its negotiations with Western nations seeking to revive the 2015 Iran nuclear deal succeed. Officials on both sides have suggested an agreement could be close, raising prospects that sanctions on Iran are lifted. That could add 1.3 million barrels of Iranian oil to the market, the IEA said.
- A deal with Iran is in sight, the U.S. says, but rapid advances in its nuclear program have meant the window for reviving the accord is narrowing. The State Department has said talks were in the final stretch after multiple rounds, the most recent of which is taking place in Vienna this week. Without a deal, the U.S. has pledged to consult with allies on an alternative—and most likely punitive —way forward. (Bloomberg)
U.S. Initial Claims for Unemployment Insurance Decline Again To a four-week low.
U.S. Wholesale Inventories Surge in December
Wholesale inventories rose 2.2% (18.5% y/y) during December compared to a 2.5% gain reported in the advance report issued on January 26. November’s inventory increase was revised to 1.7% from 1.4%.
Durable goods inventories increased 2.6% in December (20.0% y/y), the same as in November. (…)
Wholesale sales gained 0.2% (21.8% y/y) during December after increasing 1.7% in November, revised from 1.3%. A 0.7% rise was anticipated in the Action Economics Forecast Survey. (…)
The inventory-to-sales ratio rose to 1.25 in December, its highest level since February.
EARNINGS WATCH
We now have 342 reports in, a 78% beat rate and a +5.3% surprise factor.
Trailing EPS are now $208.92, forward: $225.03.
So far this week, 13 S&P 500 companies offered guidance, 2 up, 10 down, a 5:1 ratio..
So far this earnings season, 54 companies issued guidance compared with 69 at the same time in Q4’21. Only 14 guided positively, down from 23. The N/P ratio is 2.7 vs 1.7.
Bloomberg tracks all U.S. companies. During the last 13 weeks, 170 companies guided positively and 367 negatively, a 2.1 N/P ratio.
Chinese developers selling off more London property to raise cash Shanghai-based Greenland is latest to exit with £40mn sale of Ram Brewery site
A most unusual SPAC deal
By investing $200 million in Forbes, Binance — the world’s largest cryptocurrency exchange — is allowing Forbes’ majority Chinese investor to pull a lot of its money just weeks before it’s expected to go public via a special purpose acquisition company, Axios’ Sara Fischer writes.
In a typical SPAC merger, the principal investors of the firm being taken public don’t extract their cash at this stage while simultaneously asking institutional investors to back the new entity.
Taking money out now sends a signal from the majority investor, Chinese investment firm Integrated Whale Media, that it doesn’t have confidence in the company.
The other question is why is Binance investing in Forbes?
(…) The investment comes the same week that a massive alleged crypto fraud involving a former Forbes contributor was revealed by the Department of Justice: the self-titled “Crocodile of Wall Street,” Heather Morgan. She and her husband, Ilya “Dutch” Lichtenstein, were arrested for attempting to launder $4.5 billion of stolen crypto, in the largest ever seizure by the DOJ. Morgan had been a Forbes contributor from at least July 2017 until September 2021.
Binance is led by the world’s richest crypto billionaire, CEO Changpeng “CZ” Zhao, who has a net worth of $86.8 billion, according to the Bloomberg Billionaires Index. Zhao said in a press release that he sees the investment as a way to spread information about the industry.
“As Web3 and blockchain technologies move forward and the crypto market comes of age we know that media is an essential element to build widespread consumer understanding and education,” Zhao said in the press release. (…)
Binance previously sued the media outlet and two of its reporters in 2020, for a story about tactics that the story claims Binance used to evade U.S. regulations.
The Binance and Forbes deal is the most recent example of the crypto industry breaking into the mainstream. From partnerships with professional athletes and sports teams to advertisements on TV, companies that were once sequestered in the digital economy are making their mark with more traditional investments—and now, one of the oldest magazines and media brands in the U.S. dedicated to covering money, wealth, and business.
Get it?