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It’s August, and that means almost all of Wall Street is on vacation right now. The Fed closed its doors and said, “See you in September.” And politicians are island hopping: Vice President Kamala Harris made a fundraising appearance on the Vineyard this week alongside the Obamas.
It turns out that inflation may also be taking a summer break.
The Consumer Expectations Survey Monday showed that higher price expectations are fading. Federal Reserve Bank of New York survey respondents in July expects inflation to grow at a rate of 6.2% over the next year before falling to 3.2% over the next three years. Those numbers are definitely high, but they are a drop from the 6.8% and 3.6% forecast in the June survey.
Expectations for food and gasoline prices, over which Federal Reserve rate hikes have little control, also fell.
Consumer psychology impacts the economy and we can talk ourselves into lower inflation. If consumers believe that price pressures are easing, they can rein in their spending and that can become a self-fulfilling prophecy.
Another factor that could help the inflation crisis: Gasoline prices increased 60% over the past year, but have been steadily declining for the past few weeks. The price per gallon is down about 67 cents in the last month, but overall it’s still 87 cents higher than last year.
It remains to be seen how these changes will affect the Consumer Price Index, a key gauge of inflation, on Wednesday. The CPI rose 1.0% in May and 1.3% in June, bringing the year-on-year rate of inflation to 9%. That’s the fastest pace since November 1981.
but recent Falls in gasoline and food prices could significantly reduce inflation. The monthly rate could drop as low as 0.2% in July and turn negative in August, according to David Kelly, chief global strategist at JPMorgan Funds. “Overall, with demand slowing and supply picking up, we expect to see continued downward pressure on inflation through the rest of this year and into 2023, even if the Fed follows a slightly less aggressive path. ”, he wrote in a note on Monday.
And if that’s not enough inflation news for you, on Thursday we’ll see the latest data from the Producer Price Index, which is the Fed’s favorite way to measure inflation. Like the CPI, the PPI has risen in recent months, but analysts generally expect price increases to taper off.
However, not everyone agrees.
“Markets currently seem to expect a slight [economic] contraction will result in falling rates and lower inflation,” analysts at the BlackRock Investment Institute wrote in a note Monday. “We do not believe such a ‘soft landing’ is likely in a volatile macroeconomic regime shaped by output constraints. Central banks will have to plunge the economy into a deep recession if they really want to crush current inflation or live with more inflation. We think they’ll eventually do the latter, but they’re not ready to pivot yet.”
Fed Governor Michelle Bowman said last weekend that she doesn’t think inflation will come down anytime soon and that interest rates should continue to rise. San Francisco Fed President Mary Daly said something similar, warning that rate hikes were far from over.
And what about all the commotion in DC? Senate Democrats worked overtime this week to pass a sweeping economic package they are calling the Inflation Reduction Act. The massive 755-page bill includes $430 billion to combat climate change, increase health care coverage, and heckling.you corporate taxes while reducing the deficit. It’s a good plan for Democrats facing midterm elections in three months, but one that won’t really do much to ease inflation in the short term; none of the provisions of the bill will take effect until 2023.
Warren Buffet’s company lost $44 billion dollars last quarter. That sounds like a lot of money to me, but hey, what do I know?
It’s really no big deal reports my CNN Business colleague Paul R. La Monica. In fact, things are looking up for The Oracle of Omaha’s Berkshire Hathaway.
The conglomerate posted a net loss of almost $44 billion in the second quarter, mainly due to big declines in its stock portfolio: Berkshire owns large amounts of Apple, Bank of America, Coca-Cola, Chevron and American Express.
But Berkshire’s operations are actually very strong. The firm reported an operating profit of $9.3 billion in the quarter, up almost 40% from a year ago. Berkshire businesses have recovered from the Covid-induced slowdown in 2020.
Additionally, Buffett is known for thinking of market downturns as prime buying opportunities. Berkshire has been aggressive this quarter, buying a large stake in oil giant Occidental Petroleum and announcing an $11.6 billion deal for insurer Alleghany earlier this year.
Covid-19 changed the way we measure time. There are actual years, and then there are those pandemic years that either flew by at high speed or dragged on forever, depending on who you ask.
Fortunately, job losses, the economic downturn, and the change over time experienced during the first year of the pandemic has not changed the retirement expectations of older Americans.
About 60% of the 20,000 respondents in the University of Michigan 2020 Health and Retirement Study reported that their work was affected by the pandemic, with 55% saying they had to stop working altogether and 15% losing their job permanently. But financial situations remained remarkably stable. About three-quarters of the participants said their finances were the same and 60% said their household spending did not change in 2020.
“The results of this study imply that the retirement expectations of older Americans remain unbroken despite enduring the impact of Covid-19 on their work and financial situations in 2020,” analysts wrote in the Employee Benefits Research Institute.
See you on the shuffleboard court.
Earnings from Dine Brands, Hyatt, Spirit Airlines, Coinbase, Roblox, and Wynn Resorts.
He comes tomorrow: US consumer price index for July; Earnings from Disney, Fox Corporation, Wendy’s and Bumble.