- Core consumer price inflation is starting to accelerate. But where we’re really seeing pressure is on producer prices. The latest producer price readings are the highest we’ve seen since the 2021-22 post-pandemic inflation, and aside from that, the highest we’ve seen in over 15 years.
- If we look at ISM Surveys of purchasing managers and how that correlates with consumer prices, it indicates we should start seeing higher consumer prices in the next three months. It takes time for manufacturers to pass on higher prices to retailers and for retailers to pass on higher prices to consumers.
- In consumer surveys, the main concern is still rising prices, by a large margin. I’m surprised the Trump Administration isn’t more concerned about inflation when inflation appears to have been the number one concern consumers had going into the election, and it remains their top concern.
- Consumers in the most right-leaning areas of the country are even more concerned about rising prices.
- Given what consumers care about, I’m surprised about the attacks on the Fed Reserve. If the Fed is pressured to reduce interest rates, that can lead to an overheated economy and higher inflation.
- And it might actually backfire. If investors think inflation will be higher, they’ll demand higher yields, and longer term rates will be higher. We’ll have a steeper yield curve. It’s just not a political strategy that seems to make sense.
- Why are retail sales still doing well? Consumers say they’re concerned about the country but they say they and their households are “good”. I think that’s why consumers are still spending. For everything that’s going on in the country and economy and all the uncertainty around policy changes, fundamentally, households are still doing okay. The job market is holding up, inflation is still above target, but wage growth has been outpacing inflation for some time now. There are pockets of weakness, but fundamentally, households are still doing okay and we see that in their retail spending.
American Consumer 