Morning Report: Inflation at highest levels since early 80s.

Vital Statistics:

S&P futures4,45545.2
Oil (WTI)97.853.59
10 year government bond yield 2.72%
30 year fixed rate mortgage 5.22%

Stocks are higher this morning on no real news. Bonds and MBS are up for once.

Inflation at the consumer level rose 8.5% in March as energy prices soared in the wake of Russia’s invasion of Ukraine. Gasoline prices accounted for about half of the increase in the index. Food prices rose 10%, which was the largest increase in over 40 years. You can see from the graph below that we are back at levels not seen since the early 80s.

If you strip out food and energy, prices rose 6.5%. Note that the recent uptick in housing prices will begin to filter in as well, although it generally takes about 12-18 months for the numbers to reflect the increases.

Home prices rose 20% YOY in February, according to CoreLogic. “New listings have not kept up with the large number of families looking to buy, leading to homes selling quickly and often above list price. This imbalance between an insufficient number of owners looking to sell relative to buyers searching for a home has led to the record appreciation of the past 12 months. Higher prices and mortgage rates erode buyer affordability and should dampen demand in coming months, leading to the moderation in price growth in our forecast.”

Small business optimism fell again in March, and it looks like small business is generally in a dour mood. Inflation has overtaken labor quality as the number 1 problem. A net 31% of business owners cited inflation as their biggest problem, which was the highest reading since 1981. Expectations about the future (in other words business conditions in the next six months) hit a net negative 49%, which is a low for this index which goes back almost 50 years. The expectations index is being drive by fears that the Fed, which is behind the curve, will cause a recession.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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