INFLATION WATCH! Wall Street thinks it's calming down, with rate cuts coming sooner?

There was a heavily-awaited Consumer Price Index report for April. on Wednesday. And when I read that CPI went up 0.3%, I was worried that it would lead to more INFLATION PANIC, since that makes for 4 straight months of 0.3% or 0.4%, and an annualized rate of 4.2%.

But instead, the stock market loved the results, because of the expectations of the "experts".

Consumer prices rose 0.3% in April, less than expectations https://t.co/Zpdh9TpvSJ

— CNBC (@CNBC) May 15, 2024

RECORD HIGH CLOSES: All three stock indexes, the #Dow, S&P 500 and #Nasdaq all closed Wednesday with record highs as the Consumer Price Index showed inflation easing in April. The #Dow is close to hitting the 40,000 mark for the first time.

— newsbell (@newsbell) May 15, 2024

So while a 0.4% increase in CPI in March made everyone think that info would delay interest rate cuts from the Federal Reserve, a 0.3% increase in April makes them think the Fed will cut rates sooner. Interesting.

A big positive that people were drawing from the report was that the index for the cost of food at home (i.e groceries) dropped by 0.2%, after 2 straight months of being flat. Food at home is only up 1.1% for the last 12 months, and it’s no coincidence that Aldi announced price cuts last week for many of their groceries, to front-run the other grocers that have used greedflation to grab fat profits.

And given what I saw from the Producer Price Index report, food prices should remain on the level in the near future, as food prices that businesses pay suppliers dropped by 0.7% in April, and the index for processed and unprocessed foods also fell. Maybe the Fed-watchers are realizing that the 1.1% increase in energy and 8.5% increase in gas prices between January and April is not going to continue in the next CPI report. Heck, I just paid $3.17 a gallon here in Madison this week, and the national average in mid-May is down 4 cents (1.2%) vs what it was in April.

However, two areas continue to stay high. One is shelter, which had its third straight 0.4% monthly increase, and a 12-month increase of 5.5%. And yes, I have frequently mentioned that some of the shelter increase is misleading, because it often reflects rent increases from several months ago and doesn’t account for the fact that the many Americans that are set in their homes in fixed-rate mortgages aren’t paying much more at all.

But the shelter index also hasn’t gone down in the last year, and places like Madison continue to be unaffordable for too many that weren’t lucky enough to have grabbed a home 3 years ago. It’s an economic burden that is likely an explanation for why people aren’t as happy as a growing economy with sub-4% unemployment would make you think they’d be.

Also, there was another 1.8% increase in auto insurance prices, with the 22.6% jump over the last 12 months for car insurance being the largest 12-month jump in that category since 1976! This is an unexpected expense that has to be hurting some. At the same time, it doesn’t seem sustainable and is something that would seem to beg for Congressional hearings as well as “downshifting” by consumers where they carry less insurance or pay more on claims out of pocket.

A higher print of 0.9% on the import price report should keep us from breaking out the party hats for now. That increase is largely due to higher oil prices from overseas and (oddly) an increase of 1.7% for imported food and beverages. Not that we count on imports for that much of our food supply, but maybe something to look for in the next month or two.

Still, I think the panic of 4-5 inflation for Q1 2024 is indeed looking like an early-year fluke and a last-ditch attempt to grab some profits before consumers and competitors stopped accepting higher prices. Let's see if May goes even lower than April's 0.3% increase, and if so, then we're back around 3% for the annual rate for 2024, and the Fed can stop keeping its interest rate at multi-decade highs.