This week, we received hotter-than-expected inflation data. Both Wednesday’s Producer Price Index and yesterday’s Consumer Price Index came in above expectations.
The general takeaway from the financial press was “yes, inflation was slightly above forecasts, but the trend remains down.”
That’s true. But that doesn’t accurately capture the reality of the everyday price increases that are still cramping your wallet, even though the broad inflation trend continues to ease.
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So, what am I referencing?
Well, on Wednesday, Disney announced it is hiking the price for an annual pass for Walt Disney World. Get ready to pay between $30 and $50 more. And Disneyland’s annual pass prices will jump between 3.1% and 21.5%.
Also on Wednesday, Chipotle announced its own price hike. Though Chief Corporate Affairs Officer Laurie Schalow didn’t provide details, she said “we will be taking a modest price increase to offset inflation.” This is Chipotle’s fourth price increase in two years.
Last week, Netflix announced it will be raising prices…again. This comes after the streaming giant has already raised the cost of ad-free streaming by about 25% over the last year.
And if you’re “old school” and enjoy mailing a letter or post card, get ready to pay more. On Monday, the United States Postal Service announced the price of a stamp is going up to $0.68 in 2024. This translates to a 24% increase since January of 2021.
These increases are all from just the last two weeks. If I chose to include all the price hikes from the last two months, we’d be here for days.
In April 2022, a report from PYMNTS found that 64% of all U.S. consumers made an in-store purchase from Walmart within the prior month. So, if you want to accurately diagnose how everyday prices are impacting regular Americans, Walmart is where you look.
So, what’s happening at America’s most-frequented retailer?
From just a few weeks ago at Eat This, Not That:
…The receipts showed that the Great Value Thin Sliced Mesquite Smoked Turkey Breast Family Pack cost $3.14 in 2020 versus $6.72 right now, more than double the price.
A 24-pack of Great Value Buttermilk Waffles has gone up from $2.93 in 2020 to $4.14 in 2023, while Great Value Vienna Sausages have gone up from $0.43 per can to $0.77, per the receipts…
“I looked back on a pickup order from August 2020 compared to today and it went up $70! 41% increase for the whole order,” a shopper commented.
“It’s sad/funny. I have doubled my income between 2013 and 2023, yet I’m struggling more than I was back then,” another lamented.
Yes, inflation has dropped from summer 2022. But remember – inflation simply measures the change in prices between two periods. So, slowing inflation doesn’t mean prices are dropping – just that they aren’t getting more expensive as quickly as before.
Meanwhile, my personal, lived reality is that my disposable income is significantly eroded from 12-24 months ago – regardless of what the various inflation reports conclude.
Is it the same for you? Is it the same for the average American consumer?
Perhaps more importantly, will it be better or worse tomorrow?
Let’s circle back to this week’s inflation reports. Here’s legendary investor Louis Navellier with a rather blunt takeaway….
When we look back on the PPI and the CPI, they were not good.
That comes from yesterday’s Special Market Update podcast in Louis’ Platinum Growth Club service.
After detailing the results of the inflation reports, Louis made an interesting point. He zeroed in on the recent United Auto Workers strikes that are picking up steam. Part of the demands are higher wages.
With that as our context, back to Louis:
Interestingly, the CPI didn’t really show higher wage costs. They were up two-tenths in September. And they were up 4.2% in the last year, and that’s actually a deceleration from previous months.
So, a lot of people are worried there’s a lot of inflation in the pipeline.
If Louis is correct, then the laundry list of consumer goods/services price hikes earlier in this Digest will be continuing.
Are cash-strapped American consumers ready for that?
Regular Digest readers know that Louis’ forecast has been that the Fed will enact its first rate-cut in December. But after yesterday’s CPI print, he’s reversed that position. The reason why is the relentless increase in shelters costs.
Back to Louis’ podcast update:
I do not like Owner’s Equivalent Rent.
It was up six-tenths of a percent in September. And in August, it was only up three-tenths of a percent.
That means the housing inflation we’ve seen, the rental inflation, it’s not going away. That’s a third of the CPI. So, that’s a problem, and it’s going to cause the Fed to not cut rates in December like I previously thought.
Traders are of the same opinion.
We can see this by looking at the CME Group’s FedWatch Tool. This tool surveys traders to assign probabilities for different fed funds rate target levels at various dates in the future.
As I write, there is a 0% probability of a rate cut in December.
So, what’s the going expectation?
Well, two days ago before the CPI print came out, the majority odds were that the Fed would leave rates unchanged in December from today’s 5.25% – 5.50% target rate. That probability came in at 71.8%.
In the wake of the inflation data, those odds fell to 61% yesterday, but are edging higher as I write Friday. They’re now back to 67%.
Meanwhile, the probability of another quarter-point hike in December has moved up slightly, now at 30.5%.
Louis maintained his candor as he looked ahead to the Fed and its rate policy in 2024:
They’d better cut rates next year or we could easily have a recession.
By the way, if Louis’ change in forecast rattles you a bit and makes you want to take the edge off with a cold beer, that’ll cost you more too.
On Monday, we learned that the average price for a 12 oz. beer is up 10.2% in the last 52 weeks (so says CGA, a market research firm associated from NielsenIQ).
Louis points toward the same factor that we’ve been spilling lots of ink about here in the Digest recently – the 10-year Treasury yield.
From Louis:
Bond yields were falling before the CPI report. After the CPI report, they were rising. And that is the problem – period.
If bond yields go up, the stock market stalls. If bond yields go down, the stock market rallies. It’s as simple as that.
Fortunately, as I write Friday, the 10-year treasury yield is easing after spiking yesterday.
As to where the market and the overall economy go from here, Louis had one bottom line – expect change:
We really have a very uneven economy right now.
We’re going to have some sort of change next year because consumers are really upset about all the food and energy inflation. And, of course, high housing costs as well.
So, there’s going to be a change next year – whether it’s for the better or not, we’ll see.
We agree with Louis’ analysis. Current economic and market conditions are out of balance, and it will result in some sort of shift next year…
Perhaps the painful march of the 10-year Treasury yield will finally reverse … or maybe the stock market will correct … maybe it will be the U.S. consumer finally rolling over … or perhaps the soft-landing scenario will save the day, and the economy will return to strong footing as the U.S. consumer grows healthier…
Whatever it is, as Louis just noted “there’s going to be a change next year.”
It doesn’t. We continue to suggest investors maintain a trader’s perspective.
Trade the bullishness as long as long as it’s here… adhere to your stop losses when they trigger… and focus on short-term opportunistic profits while being more selective about the stocks you trust with your long-term buy-and-hold dollars.
Speaking of “trading,” if you missed last night’s live event with Louis, it was one of the biggest evenings in InvestorPlace’s history. Thousands of investors turned out to learn about The New Intelligence, which Louis calls a “trading superweapon.”
In short, this is an investment tool combining fundamentally superior businesses with a Predictive Alpha AI trading too that’s eerily accurate at projecting stock prices over the short term – roughly one month out. If you missed last night, you can catch a free replay of the event right here.
Coming full circle, yes, inflation data continue easing. But in the meantime, lots of real-world prices that impact everyday Americans keep rising.
In the background, we have broad macroeconomic conditions that Louis says will be changing in 2024. Be ready for whatever that change looks like.
Have a good evening,
Jeff Remsburg
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