Inflation Reaches 8.5%, Highest in More Than 40 Years… Core inflation, excluding food and energy, rose to 6.5%.
What it means— A number above 8% was expected. Investors took the report as better than it could have been and pushed stocks higher. Gasoline shot up 18% in March on the heels of the Russian invasion, which accounted for half of the jump in CPI. The cost of food also increased and went up 10% over the same time last year. Shelter is the stealth category to watch. It went up 0.5% for the month and is 5% higher than last year. Because shelter accounts for about one third of the index, it has an outsized effect on inflation. Rents tend to be sticky. Even if food, energy, and auto inflation fall, we’re not likely to see rents drop as the record-high real estate prices of the last two years work through the market. Expect inflation to remain stubbornly high no matter what the Fed does.
Biden Administration Pushes EPA To Approve Selling E15 This Summer… Gasoline blended with 15% ethanol sells for about 15 cents less than regular gasoline.
What it means— The suggestion did a rare thing: it brought environmentalists and oil companies together. Environmentalists don’t like E15 because it adds to smog in the warm summer months, and oil companies don’t like having to buy ethanol, which is expensive, to create the blend. The change won’t help consumers much, because few gas stations sell E15 and the blend has a lower energy content than straight gasoline. You’ll pay less, but you’ll get less bang for your buck…literally.
In addition, the Administration hasn’t considered that increasing ethanol production uses more corn. Corn production is expected to be lower due to rising fertilizer costs. With food inflation already problematic, lower cost gasoline with lower MPH exchanged for even higher food costs seems like a bad decision.
March Retail Sales Up 0.5%… Gasoline sales shot higher by 8.9%, while online sales dropped 6.4%.
What it means— Retail sales met expectations last month, as consumers curbed their spending growth a bit in the face of higher inflation. Auto sales, which account for 20% of the overall number, dropped 1.9%, which offset rising gasoline sales. Excluding autos and gas, retail sales rose 0.2%. It’s worth noting that retail sales are not adjusted for inflation. Adjusting for rising prices, Americans are cutting back on purchases. This is exactly what the Fed wants to see. Demand destruction will slow inflation. Potentially, demand destruction may have started with gasoline as the volume delivered to the market by refiners dropped in March – an abnormal event. With oil prices zigging higher, demand destruction may be on its way.
Almost 500 Ships Stuck Outside Chinese Ports… Bloomberg reports 477 vessels waiting outside of Chinese ports as the nation’s COVID-19 shutdowns slowed port activity to a crawl.
What it means— We haven’t cleared the port and shipping backlogs; we’ve just moved them from here to China. As the Middle Kingdom has shut down Shanghai and other cities for COVID, it has dramatically reduced activity at ports, stopping raw materials from entering the country and finished goods from leaving. Thus, fewer ships are arriving at foreign ports like Los Angeles and Long Beach. American shippers have used the lighter freight traffic to clear domestic backlogs, but they might resurface when China lifts COVID restrictions.
Thieves Steal Entire Bridge for Scrap… As prices for iron and other commodities shoot higher, thieves are becoming more brazen. In Amiyawar, India, thieves demolished a 45-year-old, steel-framed bridge in one night. Locals noted that thieves had been cutting away small pieces of the 500-ton bridge for years, since a concrete bridge was nearby, but the steel bridge was still in use. The criminals showed up prepared. They used bulldozers and gas torches to cut the bridge apart.
Data supplied by HS Dent Research
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