Sticky inflation will just not unstick

Stocks gained yesterday after chewing on a bland inflation report packed with… nothing new. Fed policy makers complete their two-day get together today when they will let us know what they think about rates.

Get used to it. Ok, let’s start off with my favorite chart from my friends over at Bloomberg. I love it because it really captures everything you need to know about the important topic (not my favorite topic) that is going to affect your retirement investment account in the next 18 months. No stress… I got you covered . Have a glance then keep reading.

There you have it, inflation in one chart. You can see how it clearly swelled out of control and peaked in 2022. Looking back, it becomes clear why the Fed panicked and raised rates unapologetically and so fast last year. Don’t get into the weeds, just look at the colors and their sizes relative to each other how they changed over time. Let’s start with blue, food. I talked about this one often in 2021 and 2022 because I am the chief grocery shopper in my home and I definitely witnessed prices getting out of control, firsthand, so I know that YOU TOO felt it. I also perseverated on it because FOOD IS NOT OPTIONAL for… life, so we are all kind of stuck when food prices rise. There is good news on this one, you will notice on the chart that the blue food bars have receded from their highs, but they are not yet back to where they were before the pandemic.

Next, onto the rust-colored bars, energy. That’s another one that most of us cannot get away from unless you live in a jungle, a city, or you work from home (and less do these days). We all felt, and still feel those prices at the pump go up when we fill our necessary autos. Tight supply brought on by OPEC+ production cuts and the onset of the Ukraine war caused those prices to spike for nearly 2 years. There is clearly some good news on energy prices. You will notice that this year, energy prices DEFLATED, meaning, prices actually declined.

Moving to the purple bars which represent goods. Goods are things that we buy. It’s not just TV’s and dishwashers. It can be clothes, furniture, toys… you know, stuff. That is what we, in our heads, most associate with inflation. Those “things,” or that “stuff” are… um, is optional, so we can cut back when things get tight, and obviously we did, because the purple bars have shrunken to the point where they are barely noticeable on the chart. You will recall that goods inflation was spurred on by the post-pandemic supply shock along with demand-pull inflation resulting from rich stimulus packages. Both drivers are no longer in play, but there is another reason for goods disinflation, and that comes from the gold-colored bars.

The gold bars (pun intended, I suppose) represent services. Those swelled up and remain swollen. IN that category, we find Shelter, which includes things like rent and homeowner’s insurance. That is, by far the largest contributor to the big gold bars. It has let up somewhat, but it is still alarmingly high. Another big contributor to the gold bars is the Transportation Services category. That category’s inflation is dominated by Motor Vehicle Insurance. Finally, deep down inside the Medical Care Services, inflation on Hospital Services remains red-hot.

So, while consumer inflation has eased a bit, it is still not where we, nor the Fed would like it to be. The culprits for the remaining, sticky inflation are shelter, homeowner’s insurance, vehicle insurance, and hospital care. Unfortunately, on all of those, we, as consumers, have very little pricing power, meaning, we have no choice but to accept them, as they are necessities. Hey, at least food price inflation has slowed considerably. A comedian and frequent market watcher might attribute that to the popularity of Ozempic, making food no longer a necessity.

WHATS GOING ON IN THE PREMARKET

Pfizer Inc (PFE) shares are lower by -6.51% after the company announced 2024 sales guidance range that was below analysts’ estimates. The company has struggled to maintain sales growth as revenue fades from its COVID-related drugs. The company is hoping that its acquisition of oncology-focused drugmaker Seagen would fill the gap, but it now appears that the additional revenues will not be enough. Dividend yield: 5.73%. Potential average analyst target upside: +36.0%.

Vertex Pharmaceuticals Inc (VFX) shares are higher by +7.47% in the premarket after the company announced positive results in testing a new treatment for diabetic neuropathy pain. In the past 30 days, 7 analysts have raised their price targets while 3 revised them down. Potential average analyst target upside: +11.7%.

YESTERDAY’S MARKETS

NEXT UP

• Producer Price Index / PPI (November) is expected to come in at +1.0% down slightly from last month’s read of +1.3%.
• FOMC Policy Release will come at 14:00 Wall Street Time. The Fed will also release its Q4 forecast, which will include the Dot Plot. At 14:30, Chair Jerome Powell will take to the mic in a press conference that will be closely watched for hints of future monetary policy. Don’t miss this.