Morning Report: Wholesale inflation rise more than expected

Posted on May 14, 2024 by Brent Nyitray

Vital Statistics:

Stocks are flattish this morning after wholesale inflation came in higher than expected. Bonds and MBS are down.

Inflation at the wholesale level rose 0.5% month-over-month and 2.2% year-over year. Ex-food and energy, the index rose 0.5% MOM and 2.4% YOY. Most of the increase in the index was attributable to a 0.6% increase in final demand services, which generally means wages.

The New York Fed released its survey of consumer inflation expectations, which showed short-term inflationary expectations rose to 3.3% from 3.0%. On the positive side, we remain below the 3.5% trailing 12 month average. Inflationary expectations are falling, however we remain above the Fed’s target.

Inflationary expectations are a critical portion of the inflation problem, and the Fed will be reluctant to start cutting rates when expectations are rising.

Small Business Optimism improved in April, according to the NFIB. Confidence rose 1.2%, which was the first increase this year, however we are still below the long-term average for the index. “The Federal Reserve is trapped by its policies, unable to cut rates when inflation stays persistently high (well over the 2% goal). The decline in the inflation rate from 9% could justify a small policy rate cut, but overall, the Fed needs to see more progress on reducing the inflation rate. Historically, recessions accomplish this, that’s when price cutting becomes more common. Last month’s BLS job report suggests some weakening with only about half as many jobs created compared to the prior months. As things stand now, it is likely that there will be only one rate cut this year (seven were expected last January).”

The meme stocks are back. Remember this guy?

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