Monday, May 13, 2024

US consumers grumpy due to higher prices. But maybe that drops inflation in Q2.

Last week, we found out that US consumers were grumpy as May began.
U.S. consumer sentiment fell sharply in May to the lowest level in six months as Americans cited stubbornly high inflation and interest rates, as well as fears that unemployment could rise.

The University of Michigan’s consumer sentiment index, released Friday in a preliminary version, dropped to 67.4 this month from a final reading of 77.2 in April. May’s reading is still about 14% higher than a year ago. Consumers’ outlook has generally been gloomy since the pandemic and particularly after inflation first spiked in 2021.
Well, I'd also say MAGATs not having their cult leader in the White House is a reason behind the lower numbers since 2021. But it is still a noteworthy drop that goes against an upward trend for most of the last 2 years.

While I do think that the job market isn’t booming like it was at the end of 2023 and start of 2024, I also have no doubt that GOP politicians, Wall Streeters and media trying to make “1970s-style stagflation” into a thing is a major reason for that gloominess. It is cynical and isn’t close to what our economic reality is in May 2024.

But that reality doesn’t stop the average American from being receptive to a message of “Prices are higher and isn’t that annoying? Remember when things weren’t so expensive?” And rather than be happy about higher wages and sub-4% unemployment, they’re asking (and being asked) why higher wages aren’t raising the standard of living as much as they think it should. I get that frustration, but I’d also argue that what we have now is better than the 2007-2014 era of higher unemployment, stagnant wages and declining home values.

Later on in the AP’s rundown of the consumer sentiment numbers mention a couple of large restaurant chains that are saying 2024 is going to be challenging, because the consumer is cutting back.
Starbucks lowered expectations for its full-year sales and profit in late April after a terrible quarter that saw a slowdown in store visits worldwide. Starbucks reported a sharper and faster decline in spending in the U.S. than it had anticipated.

McDonald’s last month said that it will increase deals and value messaging to combat slowing sales. The Chicago fast food giant said inflation-weary customers are eating out less often in many big markets.
OR…maybe everyday Americans have just had enough of the price hikes and profiteering from these places, and aren’t accepting what the corporations have to offer. Maybe those corporations are going to have to go back to the laws of supply and demand, and lower/limit their prices

Here's an example of a grocery chain that plans to do just that.

Earlier [last] week, Aldi announced it will further drop its everyday low prices on more than 250 summer essentials from picnic necessities to barbecue basics, which the company says will pass along $100 million in savings through Labor Day.

"ALDI is always looking for ways to help customers save money, but with more experts warning of persistent inflation, the time was right to deliver even greater discounts on our already low prices for the second year in a row," Dave Rinaldo, president at ALDI U.S., said in a statement. "We don't want food prices to hold people back from getting together with friends and family or spending time outdoors this season."

Among other items, Aldi is cutting the cost on seasonal must-haves including family packs of chicken breast, USDA choice Black Angus sirloin steak, French baguettes, organic avocado oil, organic granola bars and dried cranberries.
OR…..maybe they and other grocery giants have been jacking up prices well above cost this whole time of “stubborn inflation”, and now Aldi is trying to run ahead and grab market share in mid-2024 by lowering prices.

These types of stories make me think that the 4.5% rate of inflation in Q1 isn’t going to continue in Q2. We know that the increase in gas prices in early 2024 has leveled off in the last month, and consumer backlash may also be starting to make companies back away from keeping prices inflated in order to “increase the numbers” to the shareholders.

The big inflation reports come out in the next 2 days (PPI on Tuesday and CPI on Wednesday), and that will likely guide both Wall Street and the media as to what their theme will be for the rest of the week and the near future. They will either continue to be promoting CHRONIC INFLATION, or if the inflation rate goes back to the moderation that we saw in much of 2023, which will lead to DOW 40,000 and other “bullish” stories.

The inflation and jobs/wages reports over the next 3-4 months, along with the US consumer sentiment that is influenced by media reports of these numbers, will go a long way towards determining whether we lose our democracy in less than 6 months. And knowing that something as simple as the spin off a CPI report could be a major influence on the outcome is terrifying and infuriating.

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