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Unleaded Gasoline Futures Declined 26 Percent – Has Inflation Peaked This Economic Cycle?

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Published on: July 24, 2022

Prices of commodities have plunged from recent highs. Has inflation peaked?

The Wall Street Journal reports There Are Signs Inflation May Have Peaked, but Can It Come Down Fast Enough?

Growing signs that price pressures are easing suggest that June’s distressingly high 9.1% increase in consumer prices will probably be the peak. But even if inflation indeed comes down, economists see a slow pace of decline.

Ed Hyman, chairman of Evercore ISI, pointed to many indicators that 9.1% might have been the top. Gasoline prices have fallen around 10% from their mid-June high point of $5.02 a gallon, according to AAA. Wheat futures prices have fallen by 37% since mid-May and corn futures prices are down 27% from mid-June. The cost of shipping goods from East Asia to the U.S. West Coast is 11.4% lower than a month ago, according to Xeneta, a Norway-based transportation-data and procurement firm.

Aichi Amemiya, U.S. economist at Nomura, said that though it is too early to call it, his forecast sees June as the peak for the annual measure of overall inflation. However, the month-over-month change in core CPI will be key to watch in coming months, he said. If it slows from June’s pace of 0.7% to 0.3% on a sustained basis by year-end, he expects the Fed to start planning to ease up on rate increases. That, however, will be hard to achieve, said Mr. Amemiya, “which means the Fed will likely continue tightening even after the economy enters a recession.”

“MoM change in core CPI will be key. If it slows from June’s 0.7% to 0.3% on sustained basis by YE, he expects Fed to plan to ease up. That will be hard to achieve ‘which means Fed will likely continue tightening even after economy enters recession.’”

Lumber Futures

Lumber Futures Courtesy of Trading Economics

Lumber Futures Courtesy of Trading Economics

Lumber Declines

  • Lumber futures are down 65 percent from the May 3, 2021 peak.
  • Lumber futures are down 59 percent from the secondary spike to 1441 in February of 2022.

The Fed does not directly count home prices as inflation, but housing has slowed dramatically and with it the demand for lumber.

Wheat Futures

Wheat Futures 2022-07-21

Food For Thought

Wheat futures have declined about 36 percent from the May 9, 2022 peak.

Although there are significant declines in nearly every commodity, prices of energy, lumber, and wheat still remain elevated to historical norms.

Moreover, raw commodity prices are just one factor in overall pricing. Labor costs are a key component of finished goods, and labor costs are still rising.

Paul Krugman “I Was Wrong”

About Supply Chains

Paul Krugman vs Nassim Taleb

What About Wages

Nationally, Rent is Still Rising, Compounding the Fed’s Recession Woes

Year-Over-Year Inflation has likely peaked. And given the steep plunge in gasoline prices, the CPI for July may be negative.

But rent makes up over 31 percent of the CPI and rent is still going up.

For discussion, please Nationally, Rent is Still Rising, Compounding the Fed’s Recession Woes

It may be a few more months before rent peaks. I will have an update on rent next week.

Article posted with permission from Mish Shedlock

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