Has inflation reached a peak? Three signs that prices may soon fall

New York (CNN Business) Inflation is at its highest in 40 years, and Americans are feeling it.

One gallon of gas costs about twice what it cost in January 2021. House prices rose as much as 19.8% from year to year in February. And in March, groceries cost 10% more than they did a year earlier.

Fortunately, some analysts believe that the burden may soon ease, and that we have reached an inflation peak.

This week, the Federal Reserve will meet and likely announce plans to raise interest rates, a tool used to combat violent inflation. However, investors fear that accelerating interest rate hikes could drag the economy into recession.

Ryan Detrick, market strategist for LPL Financial, believes it is likely that inflation has already reached a peak alone, and that the Fed can begin to pull back on interest rates within the second half of the year.

The core index of personal consumption expenditure, which the Federal Reserve closely monitors for the price of goods and services, grew by 5.2% in March, excluding food and energy prices, and fell below economists’ expectations and fell on a monthly basis for the first time recently. October 2020.

Analysts at UBS also said this month that they expect inflation to probably peak in March and then fall “sharply”.

Detrick points to three key economic indicators of this belief: a fall in used car prices, a lack of “sticky” inflation, and a relative easing of supply chain chaos (although China’s Covid-related closures may put an end to that).

The chip shortage caused by a break in the supply chain and Russia’s invasion of Ukraine has made it very difficult to get a new car, and the prices of used cars and trucks have risen accordingly. In February, the price of a used car rose by around 45% from the previous year, according to the Manheim Used Car Value Index. But it has since come down to around 25%. Two months of decline show that the prices of used cars, which make up 4% of the consumer price index, may finally be on their way back to pre-pandemic levels.

The Federal Reserve Bank of Atlanta divides inflation into two categories: sticky and flexible. Sticky inflation is a basket of goods that tends to change more slowly and permanently in price, things like spending on education, public transportation and motor insurance. Flexible inflation includes goods that go up and down in cost faster: gas, clothing, milk and cheese.

During stagflation in the 1970s, both sticky and flexible inflation grew. But so far sticky inflation has remained relatively flat compared to flexible inflation, a good sign that this may still be temporary.

Of course, it may take some time before sticky inflation picks up, but Detrick says he is optimistic. Flexible inflation is like a rubber band, he said, you can stretch it quite far and it will still snap back.

And while closures in China could hurt the global supply chain, it looks like problems are easing – at least for now. If businesses can easily procure more supplies, the prices of materials will go down and consumers will not be charged as much for goods and services, Detrick said.

Shipping prices from Shanghai to Los Angeles, New York and Rotterdam are down 28% on average from the top last year, according to LPL Financials data. Schedule reliability for container vessels also continues to improve, according to new data from the analysis company Sea-Intelligence. March also marked the third month in a row with a decrease in average delays for container vessels.

The movement lower in inflation may be sudden as a result, especially for durable goods, Detrick said. Still, he warned, it is difficult to say whether we see the light at the end of the tunnel – or an oncoming train.

Buffett and Munger’s big day

Investors flocked to Omaha this weekend for Berkshire Hathaway’s annual shareholders’ meeting, the first since 2019.

There, market gurus Warren Buffett and Charlie Munger commented on the state of the economy and the stock market. They also enjoyed sweet treats provided by Berkshire-owned See’s Candies and Dairy Queen, reports my CNN Business colleague Paul R. La Monica.

Between all the ice creams and caramels, Berkshire revealed on Saturday that they bought more than $ 51 billion in stock during the first quarter of 2022, although Buffett described his current investment mood as “loose”.

More than $ 3 billion of it was their own stock, but other big names included Chevron, Apple, Bank of America and American Express. Together, these four stocks make up about two-thirds of the fair value of Berkshire’s nearly $ 388 billion portfolio.

Charlie Munger used his platform on Saturday to speak out against bitcoin and cryptocurrency, which he compared to a “sexually transmitted disease” earlier this year.

Munger said on Saturday that if an investment adviser wants you to put retirement money in bitcoin, “Just say no,” in an apparent bank on Fidelity’s recent announcement that it plans to let investors buy bitcoin for their 401 (k) accounts.

He also attacked what he called a “disgusting” increase in gambling-like attitudes to investing, popularized by meme stocks. Munger said the recent “clearance” in the online trading platform Robinhood’s stock price was “a little fair.”


Monday: ISM production; Construction costs; Revenue from Foxconn and Clorox

Tuesday: Job Openings and Work Turnover Survey (JOLTS); Factory orders; Revenue from Match Group, Starbucks, Lyft and Airbnb

Wednesday: ADP employment report; FOMC statement; Fed Leader Jerome Powell News Conference; Revenue from CVS, Dine Brands, Applebee’s, Yum Brands and Uber

Thursday: Weekly unemployment claims; Mortgage rates; Revenue from Budweiser APAC and Kellogg’s

Friday: April job report; Revenue from Under Armor and Draft Kings

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