This morning the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.3% in August (on a seasonally adjusted basis.) That comes after a 0.5% increase in July. Year over year the headline CPI rose 5.3% in August. That’s slightly below the 5.4% 12-month increase in July.
Economists expect the Consumer Price Index (CPI) to have edged lower in August in tomorrow morning’s report.
Federal Reserve Chair Jerome Powell didn’t surprise Wall Street with his speech today at the (virtual) Jackson Hole central bankers conference. Instead he left the Federal Reserve on a path to begin reducing its purchases of Treasuries and mortgage-backed assets from the current $120 billion a month rate sometime in 2021. Powell said added that at the Fed’s last policy meeting in July, he “was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.” Powell did not lay out a clear timeline for when the Fed could change its policies, or how the Fed could structure its taper. And most importantly for Wall Street he didn’t push ahead with a schedule for raising the central bank’s benchmark interest rate from the current 0% to 0.25% range.
Taiwan Semiconductor Manufacturing (TSM), which makes chips for everybody and everything, plans to raise prices on its silicon by 10% to 20% in 2022, DigiTimes reported today. The company will raise prices on “mature-technology chips” manufactured on 16 nanometer or larger processes by 20%. Leading-edge chips with circuits smaller than 16 nanometers will see price increases of about 10%.
The Consumer Price Index climbed 0.5% in July. That was in line with Wall Street expectations. And down from the 0.9% gain in the inflation index reported for June. That was enough to send stock prices higher as investors and traders decided the data supports the Federal Reserve’s view that the recent spike in inflation will be temporary. Year over year the New Consumer Price Index is up 5.4%, a 30-year high.
On Friday, after the strong July jobs report, stocks said that the “re-opening” economy is going strong. That the Federal Reserve would see the July jobs report as a reason to raise interest rates. That inflation is likely to strengthen. On those conclusions the yield on the 10-year Treasury rose (7 basis points) to 1.30%. Bank stocks, which move up when interest rates do, climbed. “Re-opening” stocks such as Macy’s (M) gained with Macy’s shares up 6.24% on the day. Defensive stocks such as Chipotle (CMG), and PetMed Express (PETS) fell 0.68% and 0.82%, respectively. And tech stocks, the recent favorite sector when the economy looks shaky, fell with the NASDAQ 100 down 0.48%. What we’ll see next week if whether these convictions hold–and whether or not investors start to question Friday’s certainty.
I’m looking for answers to two big questions that earnings from Amazon (AMZN) and Caterpillar (CAT) left us with last week. In the case of Amazon, where the company reported a slide in revenue growth after a big bump in sales due to everybody ordering everything on line during the Pandemic shutdown, the question is What is the actual sales growth trend once you remove all the plus and minuses from the Pandemic? This isn’t a question just for Amazon, of course. It’s important for figuring out the valuation of everything from Las Vegas hotel and casino play MGM Resorts International (MGM) to streaming champion Netflix (NFLX) to Starbucks (SBUX). The other question left hanging at the end of the week is whether or not we’re about to see a string of companies forecasting lower margins due to rising prices for raw materials. That was the takeaway message from Caterpillar’s (CAT) earnings report.
No change. But change coming someday. (Not soon, though.) That was the message from today’s meeting of the Federal Reserve’s Open Market Committee.
About 87% of Standard & Poor’s 500 companies tracked by Bloomberg have mentioned inflation in June quarter earnings conference calls so far in July
“Inflation is always and everywhere a monetary phenomenon”― Milton Friedman. In the aggregate and in long-term? Sure. But in specific sectors and moments? I’ll have to reserve the right to add “primarily” to the quote from the Nobel laureate.
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform.
My thirty-third YouTube video “Inflation is here–listen to Pepsi and Conagra” went up today.
The Federal Reserve has said that the current jump in inflation is temporary, a result of post-pandemic glitches in the supply chain. So far the market is going along with that view. But huge jumps in monthly inflation in May and now, this morning, June are treating that confidence.
The consumer price index (CPI) rose 0.9% in June from May and by 5.4% from June 2020, according to the Labor Department today. Excluding more volatile food and energy components, core CPI inflation rose by 4.5% from June 2020. That’s the biggest jump in core inflation since November 1991.
