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- π The Depressing Outlook & Inflation
π The Depressing Outlook & Inflation
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Publishing this a bit later today because I was having too much fun chatting with awesome people! π
Give it a listen/watch. We touched on all kinds of topics include earnings, inflation, and some painful adjustments ahead.
Closer to home, US Inflation tomorrow. Will it be higher, will it be lower? Maybe the same? You don't get anything for a pair...!
Top banter. Cheesy intro done, inflation will clearly be important tomorrow. A slightly higher print would be no surprise. It still doesn't change anything.
Core and headline inflation are likely to remain high. Maybe it's stopped going up so far and so fast, but that's about as good as the news is likely to get for now...
I mentioned Pepsi's earnings on the podcast earlier. They're pretty much the epitome of how to ensure inflation remains persistent. π
PepsiCo reported a nearly 9% rise in third-quarter revenue and again lifted its sales outlook for the year as it continued to increase prices on its snacks and drinks amid rising costs.
In the latest period ended Sept. 3, PepsiCo said average prices were up 17% from a year ago, offsetting a slight decline in overall sales volume, yielding organic sales growth of 16%.
So much for inflation and higher interest rates leading to demand destruction...
Pepsi: "We'll keep raising prices until you stop paying them"
Once again, this is the perfect example of why the high inflation trend is bigger than just a monthly snapshot, even if the market reacts to each print like a crackhead when the dealer hands over their next fix.
Goldman Sachs analysts expect a 0.4% core print, with used car prices being the biggest deflationary force π
Shelter (OER) is the largest weight in the core basket and GS think this month will see the upward pressure continue even if a slowdown awaits π
According to the same analysts, Core CPI will be 2.9% in 2023 and 2.6% in December 2024.
Health insurance and used cars are expected to drag the index down significantly, even if rent & OER will continue to push in the opposite direction, and the large weighting of the housing components is a concern...
As for the Fed, they're completely stuck anyway. The hike rates and hope strategy isn't really paying off yet. The monetary policy lags should kick in at some point next year, causing an entirely predictable crisis event and then we'll try a new tactic.
Deputy Governor Brainard said as much in a speech on Monday:
The combined effect of concurrent global tightening is larger than the sum of its parts. The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction.
We are attentive to the risk of further adverse shocksβfor instance, from Russia's war against Ukraine, the pandemic, or China's zero-COVID policies. And we are also very aware that the cross-border effects of unexpected movements in interest rates and exchange rates, as well as worsening external imbalances, in some cases could interact with financial vulnerabilities.
In this environment, a sharp decrease in risk sentiment or other risk event that may be difficult to anticipate could be amplified, especially given fragile liquidity in core financial markets.
In some countries , the realization of these risks could pose challenging tradeoffs for policy.
The title of the event where the speech was given "Shocks and Aftershocks: Finding Balance in an Unstable World" is at least a nod to the scale of the challenge and risks. Move fast and break stuff really isn't a good long-term policy.
But there's no let up from the central bank. Mester wants more rate hikes:
βMy read right now is that we still have very high inflation. We have not seen any progress really on inflation and so I think we need to bring interest rates up and I think we need to bring them up through this year and a little bit into next year,β
Kashkari said today the Fed will (probably) go to 4.5% and stay there for a while.
Related: The likeness is uncanny... π
https://t.co/C7gCloqBehβ ππππ’ππ’ππ§π πππ«π€ππ ππ²π©π (@EffMktHype) October 12, 2022
Basically, nothing's changing. Inflation's still hot, the Fed is single mindedly heading towards that 4.5% rate, and the outlook isn't bright.
Maybe they'll pause sooner if the Bank of England somehow cock things up even more than they already have. Or if they hear a passing owl crying for help...
ECB's Lagarde:
- I see a need for central banks to cooperate with each other
- Monetary and fiscal policy must cooperate, with fiscal focusing on the most vulnerableβ DailyFX Team Live (@DailyFXTeam) October 12, 2022
Central banks are already cooperating so maybe Christine's feeling the pain of those spreads she's not here to close, even as the fiscal side (governments) work against them by stimulating the economies that central banks are trying to slow.
On that note... "Hey Siri, what's Lohn-Preis-Spirale in English?" π
π Germany's Verdi and DBB Unions demand 10.5% wage hike, or at least EUR 500 monthly; over 12 months for roughly 2.5mln public sector workers, according to Union source
Represents roughly 5.5% of the 45.4 million total workers in Germanyβ Tim (@VolaTim) October 11, 2022
Ah. Wage price spiral. Got it. Danke Siri!
We've been through worse. We'll get through this too. But the more I speak to other people who really pay attention to this stuff, the more convinced I am that it's gonna be a long and bumpy road. There is no quick fix.