December's inflation report came in just last week. We talk about it and the good news it brought.
December's inflation report came in just last week. We talk about it and the good news it brought.
Welcome to the life finance in between podcast what's going on guys? Eddie Thomas, this is brought to you by wealth management services in Hershey, Pennsylvania, as always, and we just had some big data come out this week. So I wanted to jump on here and talk about it. And that actually, that data kind of jumped ahead, that data is what it always is pretty much every month at this point in time. And that's inflation. The latest inflation report came out for December, and it was something that a lot of eyeballs are on, because that's how it's been the last 12 months, and it's going to continue to be this year. But more importantly, it's something that looks as an indicator to the economy, how are we doing as far as strength is concerned in the market? And what's the reaction we're going to be? So we took a look yesterday, I'm recording this on the Friday after the CPI report came out. And we took a look in the December inflation showed promising signs it showed that year over year inflation dropped to 6.5% year over year, and the month over month, actually declined 0.1%. Now, that's both numbers are significant decrease in what we were seeing the inflation number before that was 7.1%. So for taking that into consideration, the inflation number in November, going from 7.1 to 6.5 in December, that's pretty significant. And then on the month over month side, this is even more significant, at least in my opinion, is zero down 0.1% month over month for inflation is the biggest decrease we've seen in month over month inflation since April 2020. And if we take ourselves in the time machine back to April 2020. You remember what that time was like, and that was pretty much us shutting down for COVID. Nobody went out, and nobody did anything, and everyone stayed inside. So oil hit negative $37 dollars a barrel. That month, all pretty much activity ceased to stop. We didn't go to restaurants, we didn't go to bars, we didn't do anything. So obviously that was a very deflationary period. So to see the biggest drop that we've had, since that time, nearly three years later, is significant in showing that we're finally getting in, we've been getting inflation under control. And the interest rate rises that have come in, are working. Energy prices coming down is working. So let's dive into it and kind of what we're looking at. So the two questions every time a CPI inflation comes up is two things. One, what were the actual factors that either rose inflation or caused the rise or caused it to fall? And then second, what does this actually mean? What's the Fed gonna say? What's this mean for market the economy? What's this mean for us investing. So let's jump into that first one, what were the actual factors that cause inflation to decrease over the year over year and month over month, and the big one like it always is, and it was a big driver when inflation was on the way up. But as energy prices, gas has averaged right now,$3.29 a gallon. Now compared to the 2021 average of the total year $3 $36 A gallon, significantly less and even, obviously, bigger, decrease since the high that was, as we all remember, over $5 a gallon. And we set it back then when inflation was on its way up to the 9.1% peak we saw on June of 22. The big driver of that was energy prices. Anytime you have elevated energy prices, and oil and gas, everything gets more expensive. So on the flip side of that, when you have energy prices coming down, like we've seen, because of increased domestic production, because of some sort of balance, as far as the geopolitical tensions are concerned, we're starting to see the deflation deflationary impact of that as well. So with the bad comes the good and we're finally on the better side of that, we just got to hope energy prices keep coming down from those factors. And we take a look at what's something that actually caused inflation to go up a little bit. And it's actually a big increase in the price themselves. The biggest culprit of that is actually eggs. And it's not something you really think about, especially if you don't eat eggs. And when you're at the grocery store, you definitely see the prices then But then it's kind of just out of sight out of mind. But their price year over year increase 60% a 60% increase in eggs. And I think for a dozen now it's like $4.25 around there and it used to be $2.36 It used to be significantly cheaper, even less than that. So I had to look into why why is this such a driver of on the way up for inflation for prices, as far as eggs are concerned and it actually comes down to the avian flu. So if you break down, why exactly this is happening, there's 57 million chickens over 47 states that are hampered and impacted by this avian flu. Now you mix that in with supply chain disruption that we've already had, with the increased energy prices that, like I said, are coming down, but they're still a bit higher than they were in at least years past. And that equals this massive jump in egg prices. And you see this with a bunch of products across the grocery store. Milk, still expensive, beef is still expensive. All these things are still expensive, but they don't see 60% jumps like eggs have. And honestly, I'm not quite sure because I'm not an expert on the avian flu. And I'm not an expert on the egg market, but I'm not quite sure where that's gonna lead us. And I'm not quite sure when we're finally going to see the relief that we're looking for on the grocery store side. But we are finally seeing the relief that we were looking for on the energy side, albeit not a whole lot. But since the max the top of $5 a gallon we are seeing a significant drop to now. Hopefully it stays that way. Now, the second question is what does this mean? What's the Fed actually going to say about this? What do I think the Feds gonna say about this? And then what do I think this means for the market and economy? So if we break down that question, let's start with the Fed. And I think this is really, really positive for when the Fed comes out in comments on it. At this point, I don't think the Fed is going to surprise the markets anymore. And what I mean by that is back when they first started rate hikes and inflation was 8%. And change got up to 9.1%, like I said, and then a percentage change again, it started coming down. The Fed was super aggressive in that time, with point seven 5% interest rate hikes, which the market reacted incredibly poorly to, like we saw all throughout 2022. Because until that point, there really wasn't a whole lot of talk that they were going to be that aggressive. We knew they were going to raise them by point two 5% We knew they were going to raise them by even maybe half a percent point 5%. But no one had really considered a point seven 5% interest rate hike, right until the Fed started saying okay, maybe this is an actual potential that happened here. And then just like that, you turn around and happens. And so it kind of spooked the markets and spooked investors because we weren't ready for it whatsoever. And it kind of surprised us and the market hate surprises. So now going forward, what I think and even lower inflation reading, decreasing month over month inflation, I think this means that the Fed is going to go forward and have back to back a point two 5% interest rate hikes like they've kind of mentioned and like the market is ready for that's the big deal. The market is ready for the next interest rate hikes, we know they're going to come. But as long as they're low like that, I think the markets gonna react positively, because ideally, they're already priced in because we knew this was going to happen in 2023. We knew this was coming. So the Fed comes out and says, Hey, you guys, were exactly right. What's priced in is exactly what's happening. Point two 5%, I don't think we're going to see those big swings we saw in the market, when the Fed would come out in 2022, and have these massive increases that nobody was really prepared for. So that's really, really important going forward that the Fed doesn't step out a line, do something they said they wouldn't do be more aggressive than then the overall consensus consensus thinks they need to be if they just go in line with what they've said and how we think things should go. The market is going to react positively to that. And yes, maybe we might have some down days because of it. But overall, I don't think we'll see the big swings we saw in 2022. So if it comes down to the fact that the feds gonna raise rates, perfect, I don't think we'll see that pullback, which is good news for the market, the economy continues to remain strong. The next podcast I'm coming out with is going to talk about that. So the less surprises in 2023 the better. Inflation is looking good. It's finally coming down. The data is looking good around it. So like I said, Let's not have many surprises, of course, unless they're good surprises, but I'll leave it at that for today. So until the next one, stay happy, stay healthy, and I'll see you Securities offered through securities America Inc. Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. Wealth Management Services and securities America are separate entities. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at anytime based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.