Has inflation peaked? Three signs that prices might be coming down soon

New York (CNN Business) Inflation is at its highest level for 40 years, and Americans are feeling it.

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A gallon of gas costs about twice what it cost in January 2021. House prices were up a staggering 19.8% year-on-year in February. And, in March, foodstuffs cost 10% more than they did a year earlier.

Thankfully, some analysts believe that the burden could soon ease, and that we have hit inflation.

This week, the Federal Reserve will meet and likely announce plans to raise interest rates, a tool used to combat rampant inflation. However, investors fear that accelerating the rise in interest rates could drag the economy into recession.

Ryan Detrick, chief market strategist for LPL Financial, thinks inflation is likely to have peaked on its own, and that the Fed could start to pull back on interest rates by the second half of year.

The core personal consumption expenditure index, which the Federal Reserve is closely watching to measure the price of goods and services, increased by 5.2% in March, excluding food and energy prices, coming in below the expectations of economists and decrease monthly for the first. time since October 2020.

Analysts at UBS also said this month that they expect inflation is likely to peak in March and then fall “surprisingly.”

Detrick points to three key economic indicators for that belief: falling second-hand car prices, a lack of “sticky” inflation, and a relative easing of supply chain chaos (though a related China shutdown may Covid put an end to that).

The shortage of chips caused by supply chain doors and Russia’s invasion of Ukraine, has made getting a new car very difficult, and the prices of used cars and trucks have soared. In February, the price of a used car increased by about 45% year-on-year, according to the Manheim Used Car Value Index. But since then it has come down to about 25%. Two months of reductions show that second-hand car prices, which make up 4% of the consumer price index, may finally be returning to pre-pandemic levels.

The Federal Reserve Bank of Atlanta divides inflation into two categories: sticky and flexible. Sticky inflation is a basket of goods that tends to change more slowly and permanently in price, things like the cost of education, public transport and motor vehicle insurance. Flexible inflation includes items that move up and down in cost faster: gas, clothing, milk and cheese.

During the stagnation of the 1970s, inflation grew sticky and flexible. But so far sticky inflation has remained relatively flat compared to flexible inflation, a good indication that this may still be temporary.

Of course, it might take some time for sticky inflation to catch up, but Detrick says he’s optimistic. Flexible inflation is like a rubber band, he says, you can stretch it quite far and it will still cut back.

And while a shutdown in China could hurt the global supply chain, problems do seem to be easing – for the time being at least. If businesses can easily get more supplies, prices of materials go down and consumers aren’t charged as much for goods and services, Detrick said.

Shipping rates from Shanghai to Los Angeles, New York and Rotterdam are down 28% on average from last year’s peak, according to LPL Financial data. The reliability of the container shipping schedule is also continuing to improve, according to new data from analytics firm Sea-Intelligence. March also marked the third consecutive month of reductions in average delays for container shipping.

The lower movement in inflation could be sudden as a result, especially for durable goods, Detrick said. Yet, he warned, it’s hard to tell if we’re seeing the light at the end of the tunnel – or a train coming towards you.

Big day Buffett and Munger

Investors flocked to Omaha this weekend for Berkshire Hathaway’s annual shareholder meeting, the first since 2019.

There, they watched market gurus Warren Buffett and Charlie Munger comment on the state of the economy and the stock market. They also enjoyed sweet treats provided by Berkshire-owned See’s Candies and Dairy Queen, my CNN Business colleague Paul R. La Monica reports.

Between all the ice cream cones and caramels, Berkshire on Saturday revealed it had purchased more than $ 51 billion in stock during the first quarter of 2022, though Buffett described his current investment mood as “synthetic.”

More than $ 3 billion of that was owning stock, but other big names included Chevron, Apple, Bank of America and American Express. Together, those four stocks are about two-thirds of Berkshire’s nearly $ 388 billion portfolio fair value.

Charlie Munger used his platform on Saturday to speak out against bitcoin and cryptocurrency, which he compared to “genital disease” earlier this year.

Munger said on Saturday that if an investment adviser wants you to put retirement money in bitcoin, “Just say no,” in an apparent flurry of Fidelity’s recent announcement that it intends to let investors buy bitcoin for their 401 (k) accounts.

He also attacked what he called an “abominable” surge in gambling-like attitudes to investing, popularized by meme stocks. Munger said the recent “liquidation” of Robinhood’s stock price online trading platform was “a thing of justice.”

Up next

Monday: manufacturing ISM; Construction expenditure; Proceeds from Foxconn and Clorox

Tuesday: Job Openings and Labor Turnover Survey (JOLTS); Factory orders; Proceeds from Match Group, Starbucks, Lyft and Airbnb

Wednesday: ADP employment report; FOMC statement; Fed Chair Jerome Powell’s news conference; Proceeds from CVS, Dine Brands, Applebee’s, Yum Brands and Uber

Thursday: Weekly unemployed claims; Mortgage rates; Proceeds from Budweiser APAC and Kellogg’s

Friday: April Jobs Report; Gains from Under Armor and Draft Kings

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