Categories: Economic News

Here are some signs that inflation is easing

Prices are coming down on a number of important products and supply chains are also starting to tidy up.

Why it matters: These are two very clear and undeniable pieces of good economic news. High prices and product bottlenecks haven’t gone away, but they’re getting a lot better.

  • For financial markets, unstoppable inflation was the key risk over the past year, as it could lead to much higher rate hikes by the Federal Reserve and the real possibility of a recession, both of which could crush the share prices.

Driving the news: Of late, products that saw some of the most notable price increases last year have seen their prices fall.

  • Wood: Rising lumber prices were at the forefront of the 2021 inflation hike, and even earlier this year they were still rising. They are now down 60% since March.
  • Used cars: Icarus-like used vehicle prices, boosted by the shutdown of new production due to COVID, were a key driver of inflation in 2021. They are essentially flat this year, with leading indicators suggesting a relatively sharp decline of prices from July to August.
  • Oil: Even before the war in Ukraine triggered a global energy crisis, oil and gas prices rose sharply. But since crude oil prices topped $120 a barrel in March, they have fallen more than 25%.
  • Actual status: The key price category to monitor inflation is housing, which accounts for a massive portion of the consumer price index. Even there, a sharp downward trend in prices has begun to emerge.
  • We could continue: steel, grains, gasoline, cobalt, eggs. They are all falling.

And the cost of time, in the form of supply chain grunts is also easing as shipping restrictions are quickly returning to pre-crisis normals.

Data: RSM USA; Note: The RSM index is compiled from data including inventories, delivery times, prices paid and merchandise traffic, among others; Graphic: Nicki Camberg/Axios

The chart above it’s an index, meaning it synthesizes a bunch of different supply chain-related data from various government and private industry economic reports and combines it all into one number.

  • It shows a significant improvement in delays, delays and the general unpredictability of doing business amid the economic recovery from the pandemic. (Other supply chain indexes, such as one from the New York Fed, also show a big improvement, though not quite “back to normal”).

Reality check: Just because prices are falling doesn’t mean things are cheap.

  • Overall prices are much higher than before the inflation of the COVID era.
  • By and large, prices are not returning to previous times. Always.

The bottom line: Still, from a direct stock market perspective, this is all pretty good news, if it keeps pace, as it means the Fed may not have to generate a Volcker-type shock.

  • Of course, there’s always the possibility of some demonic mutation of COVID emerging and back to the case. But fingers crossed.


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