• Food prices increased around 20% from 2021 through 2023 and have changed little since. This applies both to the cereal and bakery products index and the food at home index.
• After soaring as much as 40% in the wake of the pandemic, the price of used cars and trucks have declined since late 2022.
• In the last few months new cars also dropped into negative inflation territory.
• Inflation for durable and non-durable goods has cooled significantly since the 2022 peak with durable goods in negative territory since 2023.
• In all states across the country, the change in median income required to buy a home soared from 2019 – 2023 usually in multiples of the change from 2014 – 2018. California of course tops the list: 2% from 2014 to 2018 vs 18.8% from 2019 to 2023.
• Overall hourly wages have lagged inflation since 2021.

The article also presents some stark economic realities starting with this contrast between how people feel about their own economic circumstances versus that of the country as a whole: “In the Fed’s 2023 Survey of Household Economics and Decisionmaking, the share of those saying they were doing ‘at least okay’ remained over 70%, lower than the 78% peak hit in 2021, but roughly where it was before the pandemic. By contrast, a dismal 22% rated the national economy ‘good’ or ‘excellent’.”

Additionally, there are important shifts in measurements of well-being:

• There is unsurprisingly a direct inverse correlation between income and the share of households self-reporting difficulty in meeting expenses. However, this share has trended upward since late 2020 for households making at least $100,000. Households below that income level have generally self-reported small improvements in the past three and a half years.
• Through the end of 2023, inflation-adjusted net wealth of Black households has fallen below levels from the start of 2019.

These data paint a picture of an economy where inflation still weighs on the minds of Americans even as certain inflation pain points have come under control. Given this environment, it is no surprise that the Fed has slow-rolled expectations for rate cuts. However, with the market now pricing in near certainty for a rate cut in September, the Fed may finally be forced to take the plunge and test out inflation expectations.

A Trade on TLT

Since 2021, the core CPI (the consumer price index) has taken the escalator up and the stairs down. Seemingly in expectation of little additional improvement in inflation, long-term bond yields seem to be settling into rangebound trading. Accordingly, I drew new presumed trendlines for the iShares 20+ Year Treasury Bond ETF (TLT) to adjust my trading rules for fading TLT.

Prior to the June 3rd breakout for TLT, I cound consistently fade TLT from the top of a downward trading channel (the dashed blue line). After the breakout, I faded TLT rallies with an expectation of tests of the previous downward channel as support. The soft CPI print for June that drove September rate cut expectations makes me think a new sideways trend is unfolding. The chart below has horizontal black lines that represent the tension and tug and pull between a slow cooling in inflation and the potential stimulative impact of a rate cut cycle ahead of any significant economic weakness.

I used the top of the trading range to twice fade TLT with put options. However, I was not patient enough to see TLT below its 20-day moving average (the black dashed line above). Thus, it is possible I will eventually move the bottom of the trading higher.

Be careful out there!

The post An Inflation Story appeared first on Inflation Watch.

“…we did have higher material and oil-related cost which came in at approximately $450 million and that significantly impacted our results last year…we still see this year 2012 estimated raw material inflation to be a headwind, and we’re forecasting those increases to be between $300 million and $350 million, but we expect to more than offset these costs with our other normal strong productivity activities.

All previously announced price increases are fully implemented, including the most recent 6% to 7% price increase effective January 1, 2012. As you know, these increases are necessary to mitigate higher material costs. As a result of a cost base price increases, our margins have substantially improved both sequentially and year-over-year. And we are well-positioned to expand margins in 2012…

…We are focused on executing the margin expansion actions already in place. We expect to benefit from: one, our previously announced price increases in every region of the world…

…we’re planning for a flat to a slight improvement in demand. We will have raw material inflation in the range we talked about, but we expect to fully mitigate those increases through our productivity.” (Seeking Alpha transcripts)

These actions both remind us of the real inflationary pressures facing industrial/durable goods companies, AND the pricing power that some of these companies have, particularly in the U.S. Whirlpool’s price increases contributed much more to margins in North America than they did in the rest of the world as the company took a “strong stance” on pricing in North America. Prices were increased in Europe in the third quarter of last year.

Management’s discussion about the difference in price elasticities in the U.S. versus the rest of the world was particularly illuminating. Management claimed that “…the [U.S.] consumer who’s in the market ever 10 years doesn’t really have a preconceived notion about what that value feature content is” whereas in consumers in emerging markets are making first-time purchases with definitive affordability thresholds. Thus, although Whirlpool saw the need to raise prices as much in these markets as in North America, the resulting elasticities prevented them from raising prices as much as in North America.

Whirlpool does not discuss future pricing, but I am expecting more price increases if the economy continues to improve, especially in the U.S.

The post Whirlpool fights input costs with price increases and productivity gains appeared first on Inflation Watch.