Wait! There’s Good News on Inflation?

Notwithstanding the latest market swoons, we’re actually writing the words “good news” and “inflation” in the same headline.

In fact, the team at Action Alerts Plus recently noted that “we are potentially nearing the end of the pandemic led inflationary pressures.”

Their analysis continued:

The December producer price index (PPI) “saw its headline reading come in a tad softer than expected,” the team wrote recently. “The headline reading for December came in at 9.7% year over year vs. the expected 9.8% and November’s upwardly revised 9.8% reading. Other positives inside the report were the month over month declines registered for meats, gas fuels, fresh and dry vegetables, diesel fuel, and primary basic organic chemicals.”

Of course, “despite those positive developments, the core PPI reading for December, which excludes Food and Energy, came in a hotter than expected 8.3% vs. the 8.0% consensus and 7.7% in November. Odds are the digestion of this figure reflected higher prices for ‘airline passenger services, food retailing, machinery and vehicle wholesaling, machinery and equipment parts.’

For optimists, “While this data could mean some additional upward movement in consumer facing prices in the coming months, the positive is between the December CPI and PPI reports, and it appears we are potentially nearing the end of the pandemic led inflationary pressures. We will continue to monitor pricing comments and inflation facing data in the coming PMI reports as well as PCE data.”

To be sure “the Omicron variant has likely pushed out the return to more normalized supply chains and led to some renewed port congestion.” However, “ as those two issues plaguing the economy begin to normalize we suspect tamer inflation data ahead. That said, we think the Fed will continue on its stated path to return monetary policy back to historical levels while also continuing to be the economic cheerleader it tends to be.”

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