Inflation Jumps to 9. 1%… Core inflation, excluding food and energy, dipped 0.1% to 5.9% over the same time last year.
What it means— Higher prices were reported in almost every category, but the energy complex stood out. Gasoline prices jumped 11.2% last month and were up 59.9% over this time last year. As we’ve been discussing for months, shelter is the monster in the closet. We all know energy prices are high and that the war in Ukraine is contributing to that mess.
Due to the five-quarter lag for housing data, CPI does not yet reflect the 20% rise in home prices or 14% rise in rents. Since shelter is 30% of the Consumer Price Index, inflation should push higher for months as leases renew and owners’ equivalent rents are included in the computation. It seems peak inflation is still ahead of us.
After the report, the futures market showed a 50-50 chance of the Fed raising rates by 0.75% or 1.00% at its next meeting at the end of the month. Fed Governor Christopher Waller threw cold water on the chances for a 1.00% rate hike on Thursday, when he said that the reported CPI anchored him to a 0.75% hike. The central bankers keep acting like this matters to economic activity.
Other than buying homes, has anyone changed their economic behavior based on the Fed? The central bank is crushing stocks and wreaking havoc on the bond market, but consumers aren’t buying less gasoline, food, or cars because short-term rates are higher. The powers disrupting those markets lie far from the Eccles building and are not even within our borders.
Initial Jobless Claims Inch Higher to 244,000… The number of people filing for unemployment benefits for the first time increased by 10,000 last week.
What it means— We’re still in the acceptable range for initial jobless claims, although we’re now solidly through the long-term average of about 220,000 per week we had just before the pandemic. Many large companies have announced hiring freezes and modest staff reductions, but unemployment remains very low, at 3.6%, and consumer spending remains strong. If these economic foundations give way, then we could be in for a rough second half of the year and early 2023.
Retail Sales Reverse Course, Were Up 1% in June After Falling Slightly in May… Retail sales excluding auto sales also were up 1%.
What it means— Lots of people will point out that retail sales are nominal. While CPI and retail sales don’t track the same things, even a rough adjustment for inflation, which was up 1.3% last month, would make real retail sales flat, if not negative. It’s a fair point, but the report shows that people are still spending.
Gasoline sales are up 49.1% over last year’s numbers, which shows that sales are rising slower than prices (up 59.9%). But restaurant and bar sales are up 13.4%, which is more than prices, and miscellaneous store retailer sales were up more than 15%. We’re still getting back into our groove after COVID, and we like going out to eat and buying things. Gas is necessary and provides convenience, but it doesn’t give us the same good feeling as a nice meal out. It makes sense that we’d cut back on fuel if we could. Yet, we’re willing to spend more at bars and restaurants. We’re still spending because we’re still employed.
The Euro Falls to Parity with the U.S. Dollar, and the Yen Falls to 137… The euro dropped to parity with the buck for the first time in more than 20 years, as the yen fell further from the Bank of Japan (BoJ) threshold of 125 per dollar (the yen is quoted in reverse, so a higher number shows weakness).
What it means— The European Central Bank is woefully behind the Fed in raising rates, which makes the dollar much more attractive to international investors, and the European Union is playing a game of chicken with Russia over natural gas.
If Europe loses, Western European nations could be facing an energy shock that would shut down manufacturing and leave homes without heat. At the same time, the BoJ has refused to lift interest rates in the face of rising inflation and higher rates abroad. It doesn’t take much insight to see why people are leaving these currencies and flocking to the buck, at least not today. The world is filled with people who would love to see America lose its grip on international finance, including by pricing commodities in something other than dollars. Expect more alternative pricing and trade regimes to emerge once this global economic crisis and the war in Ukraine are over.
Chinese Ice Cream Doesn’t Melt When Hit With a Blowtorch… Someone posted a video showing that a $10 ice cream from Chinese maker Chicecream didn’t melt even when hit with a blowtorch. Other videos showed ice cream from the same maker keeping its shape after sitting in a room at 88° Fahrenheit for more than an hour. Commentors wondered what ingredients might keep the ice cream from melting and make it so expensive.
The manufacturer responded by noting that “the main components of the bay salt, coconut-flavored ice cream are milk, single cream, coconut pulp, condensed milk and milk powder.” The manufacturer also pointed out that the treat contains 40% solid materials and the thing that keeps the ice cream intact is carrageenan gum, a seaweed extract that is used to help the milk proteins remain stable. One commentor suggested that the ice cream costs so much because it contains fire-retardant.
Data supplied by HS Dent Research
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