Consumer Prices Rose 0.5% Last Month and Are Up 7% Over Last Year… This is the highest reading since 1982. Core inflation, excluding food and energy, rose 0.6% last month and is up 5.5% over last year, the highest reading since 1991.
What it means – As expected, inflation is raging, with used car prices up 37% over last year, energy prices up 29.3%, food prices up 6.3%, and shelter prices up 4.1%. While the inflation rate in shelter is the lowest among the big categories, it’s also the one that will hang around the longest.
Auto, energy, and food prices likely won’t jump again this year so the inflation rates for these categories will fade. But shelter prices will march higher as rents work to catch up to real estate sales prices. Because shelter is more than one-third of the Consumer Price Index, this will keep overall inflation elevated for most of the year.
Fed Chair Powell Sits for Congressional Confirmation Hearing… President Biden nominated Powell for a second term. The Fed Chair appeared for his confirmation hearing and addressed inflation and climate change.
What it means— Chair Powell hit the usual talking points about inflation, noting that the central bank will address it through monetary policy and take all necessary steps to get prices under control. That was the boring, and yet very important, part of his comments.
Powell seemed eager to discuss the central bank’s role, which he termed limited, in addressing climate change. He went on to note that the Fed would do this by requiring banks to assess the climate risk of their clients. That doesn’t sound very limited. It sounds like an open invitation for banks to punish whatever business they choose by wielding the stick of “climate risk” either because of a company’s operations or how its products are used. You don’t have to declare a business illegal to kill it, cutting off all access to financial markets will do the same thing. Soon we might be longing for the good old days when the central bank focused on its Congressional mandate of moderate prices, moderate interest rates, and maximum employment.
Retail Sales Down 1.9% in December, Well Below Forecast of 0.1% Drop… Excluding auto sales, retail sales were even lower, down 2.3%.
What it means – The mainstream media immediately pointed to inflation, shortages, and omicron as the reasons for the drop, but what if it’s much simpler than that? A deeper look into the numbers shows that e-commerce fell 8.7% last month, and that sales fell 7% at department stores, 5.5% at furniture stores, and 3% at electronics stores. That would seem odd right around Christmas, except for one thing. We shopped early!
Retailers both on and off the internet started warning us last summer about supply and delivery problems during the holiday season. It looks like we took them seriously and pulled forward demand. Remember, holiday sales were up 8.5% even though retail sales for December were down. This sounds like nothing more than timing.
The retail sales report was a seasonally adjusted decline from November to December. With the seasonal adjustment removed, sales were +10%! Overlooked was the 16.9% increase in sales Year Over Year according to the Census Bureau. Part of the increase is inflation. Part is due to massive stimulus programs, cash-out re-financings, and interest rate repression.
Omicron Soon To Be Gone?… Coronavirus cases in the U.K., as well as hard-hit areas in the U.S. like Washington, D.C. and New York City, show signs of fading. What it means – The fast-moving, highly-infectious, and less-severe coronavirus strain appears to be flaming out. If the numbers from those areas that were the first to be hard are the start of a trend, we could see the omicron variant fade by the beginning of February. This would be great news for parents with kids going back to school, and for businesses with employees getting back on the job. But, it won’t solve one of our biggest issues – inflation. As people grow more confident about going out, we can expect consumers to pack restaurants and other venues, causing many of the same strains on retail service businesses that we experienced before omicron. Without hundreds of thousands of new workers rushing to fill restaurant and other leisure jobs, expect short staffing to cause service issues and for higher wages to increase prices.
It’s Official, Former North Korean Premier Kim Jong Il Invented the Burrito…According to the North Korean State News Agency, the former leader created the burrito, even though items such as cheese and spices are scarce in the country, much like food in general. It’s not clear why the North Korean government chose to make this claim, since the word “burrito” has appeared in Mexican dictionaries since 1895, 47 years before Kim Jong Il was born in Russia while his parents were in exile, and 53 years before Stalin installed his father as the Supreme Leader of the fledgling nation.
It’s likely that the Mexicans, who have a pretty strong claim on the food, don’t care what the North Koreans say, and that the North Korean population, which can’t get enough food of any kind, doesn’t know what a burrito is anyway. As a side note, the North Korean News Agency claimed earlier that Kim Jong Il created the hamburger. Who knew?
Data supplied by HS Dent Research
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