Prices Up 7.5% over Last Year… In January, annual inflation reached its highest level since February 1982.
What it means— The last time inflation ran this hot the 10-year Treasury bond paid 14.43%. Things have changed. While investors earned more than a 7% real rate of return back then, today they lose more than 5.5%. The U.S. Bureau of Labor Statistics reported that prices rose in almost every category. Cereals and bakery products rose 1.8%, which helped drive up food prices by 0.9%. Used car and truck prices rose 1.5% and electricity prices jumped 4.2%. People who want to travel this summer should plan early, as airline fares rose 2.3% and likely will go higher as demand ramps up.
The higher prices led investors to push the chance for a .50% rate hike in March from around 35% to more than 50%, even though most Fed governors have downplayed that possibility in their various public comments. The news drove equities lower for about 45 minutes before they staged a comeback. At least, they did until St. Louis Federal Reserve President Jim Bullard spoke.
Fed President Bullard Wants to Raise Rates 0.50% in March… Bullard also favors raising rates by a total of 1% by July.
What it means— Well, that’s going to leave a mark. After Bullard’s statements, investors sent the equity markets substantially lower and the 10-year Treasury bond yield spiked above 2%. The February Fed Funds futures rose as well, which is notable because that contract expires at month-end. That implies that some market participants think the Fed might raise rates in an emergency meeting before February 28. That seems highly unlikely.
Real Average Hourly Earnings Up 0.1% in January… Average hourly earnings increased 0.7%, while headline inflation rose 0.6%.
What it means— Unfortunately for hourly workers, real average weekly earnings fell 0.5%, as workers put in fewer hours. Over the past 12 months, real average hourly earnings have fallen 1.7%, because inflation has risen faster than earnings. Combined with fewer hours worked, real average weekly earnings fell 3.1% over January 2021. Employers are raising wages and prices, but not fast enough for their employees to maintain, much less increase, their purchasing power. Expect higher prices in the service industry as we get closer to the peak travel months.
Consumer Debt Up $1 Trillion in 2021… This is the largest increase in consumer debt since 2007.
What it means— This isn’t as daunting as it sounds. Most of it, $860 billion, was mortgage debt, the result of soaring housing prices. Another $84 billion was auto loans, another sector where prices zoomed higher. While credit card debt did jump $52 billion in just the fourth quarter of last year, the largest increase in the 22-year history of reporting, Americans still have $71 billion less credit card debt outstanding than at the end of 2019. Consumers have a lot of borrowing capacity left.
Shipping Costs Fall 5% to 25%, Depending on Route… Major shipping companies reported that rates between ports such as Shanghai and Los Angeles began to fall at the end of 2021 and have trended lower.
What it means— It’s possible that we’re at the beginning of the end of the supply chain crunch. The combination of increased activity at ports, more goods leaving China, and consumer demand rotating from goods to services could ease the strain of the last two years. That’s nice, but don’t expect consumer prices to drop. Instead, retailers are likely to maintain their higher prices, which will pad their profits. Should supply chain woes ease, small retailers will be the biggest beneficiaries, as they must pay spot shipping rates, unlike large companies like Walmart and Home Depot, which contract shipping rates a year in advance.
Man Spends Two Decades in Jail, Then Twin Brother Confesses to Crime… In 2005, Kevin Dugar was sentenced to 54 years in prison for murder. Now his twin brother Karl Smith, who uses their mother’s surname, has confessed to the crime. But there’s a catch. Both were drug dealers in Chicago at the time, and the murder was gang related. Mr. Smith continued his life of crime and is now serving a 99-year sentence for an armed robbery that resulted in the death of a six-year-old. In 2013, he confessed to the murder for which his brother is serving time, but the judge didn’t believe him because Mr. Smith has nothing to lose. Now, the Illinois Court of Appeals has granted Mr. Dugar, who has always maintained his innocence and who turned down a plea deal that would have resulted in an 11-year sentence, a new trial. Since friends and family can’t tell them apart, how do you know who did it?
Data supplied by HS Dent Research
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