ISMS 5: How Rising Rates and Oil Prices Are Contributing to 6.4% Inflation in the US

How rising rates and oil prices are contributing to 6.4% inflation in the USClick here to get the PDF with all charts and graphsWhat do you think: Are we headed for a recession or has the Fed engineered a soft landing?Jan. US CPI was up 6.4% YoY, continuing its slide from the June 2022 9.1% YoY peak, driven by high food and energy-related productsFood was up 10.1% YoY but continued its 5th straight month of slowdown, driven by food consumed at home was up 11.3%The energy component of CPI rose 8.7% YoY; Oil was $100/bbl in Jul-2022; it’s now down to $80bbl. Oil price is the driver; however, energy commodities prices were up only 2.8%, thanks to a slower oil and gas price riseAll other items excluding food and energy never rose as much and are coming down more slowly. This group benefited from negative used vehicle prices, but shelter costs keep it highOver the long term, energy, despite its small weight in CPI, drives consumer pricesPutin’s invasion of Ukraine was not the primary driver of inflation; instead, it was the oil and gas price rise in 2021 when post gov’t lockdown demand bounced backHome prices rose massively thanks to Fed’s nearly-free money, and soon could start contractingThe oil price fell 6.1% YoY in Jan, down from its Jun-22 high rise of 60.8%; disinflation is in full swingHome prices continued slowing from the July 2021 peak YoY change of 18%Key pointsJan. US CPI was up 6.4% YoY, continuing its fall from its 9.1% peak in June 2022The 6.4% level was kept high mainly by high food and energy pricesIt was a slight YoY slowdown compared to Dec-22, which was 6.5%Food was up 10.1% YoY but continued its 5th straight month of declineFood peaked in Aug-22 at 11.4%The 10.1% food price rise was driven by food consumed at home which was up 11.3%Though oil price has fallen, prior oil price shocks are still feeding into the food supply chainIn addition, food supply chains seemed to still be damaged by the US gov’t economy lockdownEnergy component of CPI rose 8.7% YoY, Oil was $100/bbl in Jul-2022, now at $80bblWhen you smooth price changes with a 12mma you see that oil price is the driverEnergy commodities prices were up only 2.8%, thanks to a slower oil and gas price riseEnergy services were up 15.6%, driven by the prior oil price spikes feeding throughAll other items didn’t rise as much and are coming down more slowlyThis component of CPI is slow to adjustThis is why a few months ago, when I last looked at US inflation, I mentioned that inflation was unlikely to come crashing downEx-food and energy items benefited from fall in used vehicle prices; shelter remains highPrice rises were low for Apparel (3.1%), New vehicles (5.8%), Used cars and trucks (Negative 11.6%), and Medical care commodities (3.4%)Energy, despite its small weight in CPI, seems to always drive consumer pricesDid Putin’s invasion of Ukraine drive inflation?Oil and gas prices started their rise in 2021 when post gov’t lockdown demand kicked onHome prices rose massively thanks to Fed’s nearly-free money, now falling to neg?Oil price has already moved to negative, it looks like disinflation is in full swingThe 2007 YoY housing price increase maxed at 10%; it peaked at 19% in July 2021 Click here to get the PDF with all charts and graphs Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast