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Click the link above read the full article or click the video to watch a discussion of the article.
The author of this article is Kyla Scanlon, she is the founder of a financial education company called Bread and a creator. She does a great job of connecting the dots between what is happening and why it is happening.
Inflation numbers are all over the news, and been going up for several months now. The first time we have seen a 0% number was July, and that number came out recently.
The *interesting* thing about the recent print was the response online, where people seemed to be insistent that the 0% print for July was fake or a lie or both. I mean, even Twitter (?) added a fact checking note to Biden’s tweet on the inflation print, stating it was misleading, which is truly bizarre.
Jerry and I banter about this all the time, what numbers are real and what numbers are massaged. I think the bottom line is the stock market does not care whether things are GOOD or BAD. It really matters whether things are getting BETTER or WORSE. This number may have signified that things are looking BETTER when it comes to inflation. Are things GOOD though? Well inflation is still 8.5% year over year (in the US), so it is certainly still here and higher then central bank targets around the world. I really like this example that Kyla provides:
Inflation is still high - the car (inflation) is still zooming along, as shown in the first picture of this article - but it’s decelerating.
If you know Jerry and I, you know that Jerry is a numbers nerd and loves diving into the data... oh wait that is CJ! Data does matter. As Kyla points out it drives policy and long term expectations, but it is not the perfect picture of reality. I would echo her statement here:
Even if expectations are wacky, the data is an anchor in the sea of fluctuations, which is why it is important to pay attention to.
The chart below was an interesting glimpse into what drives the month over month consumer price index changes. Shelter costs seem to be growing, which is to be expected with rising rates. The fall in energy prices, has seemingly had the biggest effect on the 0% change, more then offsetting gains elsewhere.
Producer price pressure easing too: The PPI also declined! That’s great news, as it’s the first decline since April 2020. If prices are softening for producers, that will have some downstream easing for consumers (theoretically).
This would be another good sign, the produce price index declining.
Where does inflation go from here - well there is some data and projections regarding that. The below chart from the Cleveland Fed projects this out. Inflation is not going away - it is not likely getting back to the targeted 2-3% rates (in North America).
Her final thoughts were very well said. It seems like a microcosm for a lot of aspects of the world now. There is numbers, information and forecasts when it comes to just about everything now. You can build a narrative around any one piece of them. We agree with Kyla, sometimes it is best to sit back and take the view that:
But right now, things are looking a little bit brighter - and that’s something to be happy about.
The article linked and mentioned above was posted on August 13, 2022 by Kyla to her substack blog. Check out more from Kyla at her substack here.
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