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.