Inflation on Our Minds, Interest Rates, and No Change in Ten Years


(Keeping you up-to-date since 2006)
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January 16, 2022
INFLATION: The Consumer Price Index for All Urban Consumers rose 0.5% in December. Over the last twelve months, this index has increased by 7%, the highest level in four decades. Costs related to shelter and used vehicles rose the most. Costs for food also increased, but at a slower pace. As these numbers roll in, consumer sentiment is suffering. According to a longstanding index kept by the University of Michigan, consumer sentiment decreased in December. In surveys done by Reuters, approximately 75% of consumers rank inflation as the primary concern. In a speech last week, New York Federal Reserve Bank President John Williams said, “With growth slowing and supply constraints gradually being resolved, I expect inflation to drop to around 2.5% this year.” If I had to guess, I’d agree that inflation will come down from 7%, but probably closer to 3.5% by year-end. We’ll see.
RETAIL SALES: In December, retail sales in the U.S. decreased by 1.9% from the prior month. Culprits seem to be inflation and/or omicron. December sales were 16.9% higher than a year ago. Some are surmising that December fell compared to November because all the news about supply chain issues motivated people to holiday-shop early. This led to a strong November, and December just could not keep up. But this dip in sales will cause economists and investors to keep a sharp eye on the next few months of consumer activity.
SECOND WEEK OF U.S. STOCK DECREASES: The first two weeks in the U.S. stock markets have both been negative, although it was much calmer this week. Investors are still focusing on interest rates and how fast the Fed will raise its rates to tame inflation. Rising COVID numbers have not helped. Late in the week, uninspiring earnings reports by some big U.S. banks and weak retail sales sent the market lower again. Then the buyers jumped in and prices rose giving us a week pretty close to break even. Foreign stocks moved higher.
INDUSTRIAL PRODUCTION DIPS SLIGHTLY: In December, industrial production in the U.S. decreased by 0.1%. For the fourth quarter of 2021 as a whole, industrial production rose at an annual rate of 4.0%. U.S. industrial production is higher than it was in February 2020. One component of industrial production is manufacturing, and that was down 0.3%.
BIG U.S. BANKS SEE PROFITS DECREASE: During the pandemic, U.S. banks have been doing great. Deal-making has boomed, market volatility helped its trading business, and the housing market made mortgage lending extremely profitable. According to earnings reports released last week by JPMorgan Chase and Citigroup, profits for big banks are coming back down to earth. JPMorgan Chase’s fourth quarter profits decreased by 14% and Citigroup’s by 26%. Overall, for 2021, their profits are at all-time record levels.
SOUTH KOREA CENTRAL BANK RAISING RATES: Last week, South Korea’s central bank increased its benchmark seven-day repurchase rate by a quarter of a percent to 1.25%. This is back to pre-pandemic levels for South Korea. The bank cited fighting inflation as the primary reason for its actions.
CONTINUING TO WATCH THE DATA: U.S. deaths took a decisive step upward this past week, up 20% from the week before. After months and months of persistent decreases, global deaths increased 13.6% last week (upper right in the images below). In South Africa, infections are still coming down, but deaths are going up, albeit still small numbers. I also show UK deaths below as well. South Africa and the UK got omicron before the U.S. so the thought is they may be going through a pattern that will repeat here. Infections rose very fast, peaked fast, and then began to go down just as fast. But deaths, a lagging indicator, are rising with all those infections but not dramatically. We will see if that peaks as well, which is why I’m watching those numbers. (Sources:
HOSPITALIZATIONS AND GLOBAL INFECTIONS: The number of people in U.S. hospitals who are COVID positive went up by another 30%. Reported infections increased in the U.S. by 15% after rising by 32% the week before. Global infections increased by 27% after 42% last week. The Washington Post cited a a variety of sources, tests and monitoring sources showing that it appears that the peak of infections has been reached in the northeast and the midatlantic regions of the United States. That would be consistent with South Africa and the U.K., but it is too early to be sure. (Sources: AND AND
TEN YEARS CHALLENGE: I never participate in those “challenges” that circulate on Facebook. But recently there was a “ten years challenge” that was getting people to post pictures of themselves now and ten years ago. I bit. Haven’t changed much.
Have a great week!
Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
Douglas R. MacGray, J.D., C.F.P. ®
Stonecrop Wealth Advisors, LLC
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Chadds Ford, PA 19317
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(c) 2022 Douglas R. MacGray, All Rights Reserved
*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets.
Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

    Doug MacGray

  • DATE

    January 16, 2022


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