End of the Month... So February 2022 Inflation Numbers and Other Stuff.

 

With the PCE index report this morning, we can wrap up all the February inflation numbers. Granted, some slight improvement was seen in some areas, but still double digit increases on the upstream models seem to suggest more inflation to the consumer.

There does seem to be some potential for deceleration in core inflation, as decreased purchasing power is becoming more widespread. Inventories of retail and wholesale have increase ahead of inflation. Normally this could be seen as wonderful news, but it is hard to keep a straight face over lingering claims of supply chain shortages and increases in inventories, in my opinion. 

We all know that supply v demand is the determinant of pricing. If demand goes up and supply can't keep up... prices increase. Demand falls and supply increases... prices decrease. The past year saw demand pumped up with various stimulus checks and which contributed to "supply chain" issues. The benefit of that additional money is waning as retail sales minus inflation are flat to lower. Even more so with energy and food pulled from the equation.

As stated, core items might fall in the coming months, but what about energy and food?

Energy is struggling to supply to meet the demand. Regardless of any Strategic Petroleum Reserve activity... the demand will need to decrease for price relief. Going into the summer driving season, I am not so sure that will take place before August. Besides, that 1-million-barrel daily release will likely be exported, which may have impact on global prices, which may in turn trickle down to the US Consumer... eventually. We must remember the previous release announced last fall has not yet been completed. The 30 Million barrel release announced in March has not started, so just how quick will this happen?

Maybe in time for the midterms, but then you have the other headline issue...

Food, which accounts for about 14% of the Average American expense, compared to 8% for energy (>4% for Gasoline). Food is the one item that rarely sees a decline in demand and usually an increase as the global population is still growing. It really is all about supply and weather impacts of the past couple of years has NOT been conducive to slowing food price inflation. Throw in the Ukraine invasion and this is not an area that will likely seen any leveling off unless we get a good global weather pattern for crops and peace breaks out quick in war torn areas. 

Food is likely to be the issue for the next couple of years. A case could be made that Russia invaded Ukraine to control its large agriculture industry, to which it could use as influence amongst its friends, etc. Whatever the reason, it has clearly backfired, and the global community will become increasingly unsettled over food insecurity.

We will likely see the CPI in the mid 8% range in March's report and higher the following month. Much will be made about the high price of gasoline, but the food component is the real long-term story.

Forget the Oscars, as inflation is about to give us all a slap in the face. 

Time For an Update on Petroleum Inventories? 3-17-2022

 

What I am about to say, should be prefaced with this from the EIA...Oil and petroleum products explained. Scroll to this heading...Petroleum products produced from one 42-gallon barrel of oil input at U.S. refineries, 2020.

Note this is the end product average of multiple types and grades of petroleum. Some crude types are present a more efficient gasoline refinement, while others might lend themselves more easily to distillates, etc.

So the input mix, to provide the output demand, based on cost efficiency. As long as the output is matches demand, the world is a much friendlier place.

I suspect that the demand is not matching the input at this time, although I have no data to support that notion. The crude inventory might be 415M barrels... but what types of crude? And how does that match with the most efficient refining mix to provide the current demand?

Oddly, the gasoline inventory are almost spot on with inventories of this time in 2019. Crude inventories are -5.4% below this time in 2019, but the distillates are -13.6% below this time in 2019. Granted there is a big difference in import and export of distillates, but that has been a factor for several years. 

While I am trying to wrap my head around all this, I should note the distillate production is below this time of 2019 levels and the exports are creeping above those 2019 levels. 

So it would seem that more distillates must be produced, while maintaining gasoline stocks, which would then require more barrels of oil. See where this is headed? UP! I would not be surprised if crude prices won't below $90 until late summer. Which will also see a slide of national average gasoline drifting back to about $3.85. That's if... a recession doesn't break out.

Wasn't that joyous?!?

Retail Trade Report for February 2022

 

The Census Bureau has released the ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, FEBRUARY 2022. 

Advance estimates of U.S. retail and food services sales for February 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $658.1 billion, an increase of 0.3 percent (±0.5 percent)* from the previous month, and 17.6 percent (±0.9 percent) above February 2021. Total sales for the December 2021 through February 2022 period were up 16.0 percent (±0.7 percent) from the same period a year ago. The December 2021 to January 2022 percent change was revised from up 3.8 percent (±0.5 percent) to up 4.9 percent (±0.2 percent).

The report does note the impact of higher gasoline prices, but remember this is for February and spending at gasoline stations was about 1/2 of that miniscule 0.3% before inflation adjustments. Whether you believe it or not, gasoline prices nationally rose on 8% from January to February and are currently about 22% higher than February. 

Of course, the report does not factor in inflation, which is indicated on the graph above. It should be noted the orange dots are calculated on the average CPI data. It should come as no surprise that we are paying more for less. In the 11 months since March 2021... we are paying 5.62% more for -1.39% less, on an adjusted basis.

One of the things I have considered, is that stimulus may have contributed to some of the inflation and certainly the huge jump in purchases. I suspect that money has been spent and we are now approaching fumes. That is in no way meant to imply that inflation will start to recede.

Far smarter minds than me, indicate inflation peaking around April, which will be reported in mid May. Any deceleration would follow a month later. A lot of that prognostication is based on forecasts in other areas, that might get revised. 

So hang on!!!

Producer Price Index for February 2022

 

The Producer Price Index as released by the BLS, this A.M. 

The Producer Price Index for final demand increased 0.8 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 1.2 percent in January and 0.4 percent in December 2021. On an unadjusted basis, final demand prices moved up 10.0 percent for the 12 months ended in February.

In February, the advance in the index for final demand can be attributed to prices for final demand goods, which rose 2.4 percent. The index for final demand services was unchanged. 

The upward track continues, although many areas within the stages are starting to slip behind. Unfortunately the Energy and Food sectors are not among that slippage. 

Energy as in crude oil has slipped back from the $130+ range of a week ago and are now in the $105 range. The national gasoline average soared to $4.35 on March 10th and is tailing off ever so slightly to $4.31 at this point. In theory, the price should fall to $3.95 range over the next 2 weeks. 

However, while gasoline stocks are in the somewhat normal range for this time of year, the upstream crude stocks are below, as well as distillate stocks. Which points to a possible imbalance in crude grades for feedstock, which would point to higher refining costs, or so it would seem to this hillbilly.

In any case, demand will likely pick up going into the summer driving season. Supply v demand.

As for food, beef input costs aren't ramping up as much as other meats, but once again... grilling season is upon us. As for Pork... input costs are running about 25% higher than this time last year. Poultry is even higher. Feed and nutrients are the main drivers, with a potential bird flu outbreak causing some concern. 

The feed issue is being hammered by poor crop conditions over the past couple of years and some of the biggest producers are hampered by bad weather. As some of the exporters have been reducing exports, big importers have gone on a buying binge. 

Then came the invasion. Although you may hear something different in the months ahead. Just sayin...

Tomorrow is retail sales, which will require cutting through a ton of revisions, imo.

Breakdown of CPI DATA and Real Earnings, February 2022

The BLS Report from February, 

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in February on a seasonally adjusted basis after rising 0.6 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.9 percent before seasonal adjustment.

From Last Month... The forecast for February numbers, due out in March are 7.59%~7.9%. So it was on the upper end. Remember this is inflation for the month of February.

With this release comes a variety of other numbers...

I am at a 5.9% annual rate...

This rise was largely attributable to food at home, which on the BLS report, outpaced the overall inflation rate at 8.6%

The forecast for March is a bit blurry, due to energy prices, but the expectations would be 8.2% ~ 9.1%. I would unhappily lean towards the 8.7% range, just based on the rapid rise of gasoline during this month, although it may be peaking as I type. I would expect the upward trend in food prices to continue. 

Of course it is all speculation, as we are not at mid month, but I feel it is safe to say that prices will not recede.

On to the earnings report...

This was a disappointment, with an -11¢ per hour decline. Maybe weekly earnings improved...

NO. For the 3rd straight month real weekly earnings declined. Remember all the data thus far is for February.

Going forward, we must remember the 8.0% number, as that rate of inflation is largely without the impact of the Russia-Ukraine war. The impact of the war on energy and food costs is yet to come. We must also remember that weather impacts food costs and with spring around the corner and the thought of summer vacations on the horizon... energy costs will likely rise as inventories of petroleum products are at or below the 5 year range. 

Earlier I mentioned the expectations of inflation rates for our current month, due out in the 2nd week of April. Going forward into April potential expectations, the inflation rate for a month to month increase is staggering (think June 2008 or 9-2005's Katrina or 1-1990 Gulf War) as well as the double digit year to year (Oct-1981). 

I suspect the economy will begin to cool at about this time and the longer range inflation forecasts indicate as much. Tuesday will bring the PPI report out and some indication of pricing going forward might be seen. It will be followed the next day with retail sales, which should be interesting. A lot of revisions, etc. last month under the guise of "usual annual" stuff, so it will be interesting to see the spin on that report.

Buckle up, the peak is still a ways off, imo.

MY MUDDLED THOUGHTS AND ATTEMPTS TO MAKE SENSE OF IT ALL

Normally I write about Inflation and "business" outlook, etc. Recent events have muddled my thoughts and it is hard to make sense of what might happen... so here goes, while acknowledging recent events potential impact.

Inflation 

The BLS CPI report is slated for release on March 10th. THIS REPORT IS FOR FEBRUARY, so would have limited impact from the invasion. The range is 7.6% ~ 7.9%, with the upper end more likely. Pre Invasion expectations for March CPI, being released in April... to be even higher. 

It is those expectations that are going to be heavily impacted by the Ukraine Invasion.

Food

The potential disruption of basic food commodities, have driven multiple items to either all time highs or nearing those all time highs. Wheat, Corn, Barley, Canola, Rice, etc. etc. 

Grains are going up, so what about meats? There is a mixed message compared to a couple of months back, with the likelihood of staying flat. However, while chicken prices are moderating, there are worries about bird flu, etc. 

The CPI has food as about 14% of the average household expense. It should come as no surprise that the above average income households spend less that 14% and below average income households, will spend more that 14%. 

It is about 50/50 of that 14% going to food away from home and food at home. I have no data as to how that breaks out for above and below average income households, so will refrain from positing a guess. I would think the food index will rise month to month and add onto the inflation pressures. 

Energy

While energy makes up only about 8% of the CPI index compared to food's 14%, guess which will get all the media attention! That most of the current significant rises are in the past few days, the March 10th report is considering just the month of February.

I have no doubt the national average for gasoline will reach all time highs and possibly reach $4.5 @ gallon. The previous was in July, 2008 at either $4.11 or $4.17, depending on data source. This level, with everything else staying flat, would push March inflation to 8.5% y/y. For reference, this is in the range of  Jan48 ~ Aug48 preceding a recession; Feb51 ~ Jun 51 Korean War; Dec73 ~ Aug75 Oil embargo resulting in recession and Oct78 ~ Dec81, which straddled two recessions and the Iran Revolution.

I guess I am saying that nothing gets Americans more antsy... than the price of gasoline. Not even...

Ukraine

Certainly I am concerned about the innocent lives being taken and the disruptions to others. It is not lost on me that not a lot will be done, other than taking in refugees, etc. I recall reading where it has become popular in Ukrainian circles to wonder how many more buildings are left in the west, to be lit up with Ukrainian colors. Apparently, they realize this is about the extent of their support. Is that what is called "virtue signaling?"

Here in the USA on social media, it seems the discussion is about all the things we should've, could've or would've done to prevent this. I am not sure how this could have been avoided, short of keeping the U.S.S.R. intact. A right that wasn't ours to make. 

Sure, we might have rejected those former members of the Warsaw Pact from joining NATO, but why? And why did they ask to join NATO? I don't recall NATO countries sending in tanks and overrunning those countries and forcing them to join NATO.

Sadly, we can now see the answer to these questions. Horrifying as it might seem, Russia will eventually pound Ukraine into submission. Then some rebel enclave (Russian) in Moldavia will need to have Russian "peacekeepers", so who will be next?

A couple of other questions might be... Is Putin really that strong? Or are we just that weak? Frankly, the lack of resolve by western countries can be pinned on a very divided public. It should also be pointed out that while a large number of countries voted to condemn the invasion and a very few rejected the U.N. condemnation... the abstentions were by countries with nearly 1/2 of the global population. We in the west need to toughen up or the future will be grim, imo.

Putin

It is not uncommon for idiots such as myself to make stupid statements. To have national leaders uttering such statements is borderline insane. 

Uttering that someone in Putin's inner circle should take him out, is something idiots like me would say. I would suspect that Putin's inner circle are not nice people and have their own vested interests, which might include assuming Putin's leadership position at some point... once their own vested interests are in place and could safely assume that role. In other words, someone that is whispering in Putin's ear and Putin considers as being faithful to him. Possibly even a more sinister version of Putin.

I am reminded of Fidel Castro. Fidel Castro came to power by ousting Fulgencio Batista, a person which was reviled by the US. Castro was treated with open arms, appearing on American Television as some kind of conquering hero... until he quickly lost that mantle and became the most hated by the same groups. It did not take long and led to assassination attempts, severing of diplomatic ties, The Bay of Pigs and finally leading to the Cuban Missile Crisis.

Be damn careful of what you wish.

Summation

I suspect the Ukraine invasion will shortly be displaced on American television as inflation and economic worries become more prominent. As for inflation, the polls seem to indicate that 50% of the American public blames Biden and 25% blame Putin. Which may explain the Administration's reluctance to sever Russian Imports and the Republicans are keen on doing just that. Politics is always in play.

I frequent various European news editions and this will likely be the same, and they have a much bigger dependence on Russia's energy. 

How we got in this shape can and should be discussed, but afterwards we must acknowledge... WE ARE IN THIS SHAPE! What are we DO about it and not just talk about it?