Inflation

Earlier in the week we noticed a post suggesting that beef prices were setting records in the US. That led our curiosity to what other commodity prices have done, specifically those in the grocery store impacting the consumer directly, over the last few years. Arbitrarily we thought let’s look back to beginning of the first Trump administration, or the beginning of 2016.

Ground Beef

Eggs

Chicken Breast

Orange Juice

Even though it is not purchased at the grocery store, most of us need to buy gasoline as well, to get to the store of course.

Gasoline

Let’s compare these price changes to that of the widely watched inflation gauge of the Consumer Price Index, CPI.

CPI Index

We would also like to add a few components of the CPI as well for perspective.

Rent of Shelter, 35.83% of CPI

Medical Care Services, 6.5% of CPI

Motor Vehicle Insurance, 2.93% of CPI

Just those 3 items above account for 45.26% of the CPI, and they are unavoidable costs the consumer must bear, just like the grocery items we began with.

For perspective let’s look at what the consumers earnings have done over that same time period.

Average Hourly Earnings

Summation:

Commodity	% Price Change since Jan 1, 2016
CPI Index	35.69%
Rent of Shelter, 35.83% of CPI	28.10%
Medical Care Services, 6.5% of CPI	-0.51%
Motor Vehicle Insurance, 2.93% of CPI	56.35%
Sub Average, not including CPI itself	27.98%
Gasoline	61.32%
Ground Beef	50.35%
Eggs	198.74%
Chicken Breast	29.68%
Orange Juice	105.67%
Sub Average	89.15%
Average Hourly Earnings	42.85%

Consumers are feeling the impact of inflated prices still with different metrics. Walking into the grocery store is, on average, twice as expensive as it was back in 2016. The average price of the 4 items above, along with gasoline, is more than double the 43% increase in wages from the same period. So, for those who’s grocery bill represents a larger percentage of their overall income, it is entirely understandable why they feel the impact of inflation greater than those who do not. Meanwhile, it’s hard to argue the consumers’ buying power has lost pace with the CPI. Maybe this can help explain the differential between “soft” and “hard” data that we have mentioned previously. Who exactly is responding to the surveys?

In addition to that, the compilation of the CPI Index itself may now be in question.

The Bureau of Labor Statistics (BLS) calculates CPI inflation by gathering ~90,000 monthly price quotes across 200 product and service categories. There are hundreds of field collectors tracking these prices in 75 urban areas nationwide. However, when price data is unavailable, BLS uses estimates, which typically average ~10% of all data points. Most recently, in May, the share of estimates jumped to ~30%. In other words, nearly 1/3 of the prices within the CPI were simply “estimated” last month.

WARN Notices

We noticed some focus on WARN notices this week. The most recent release was May at 43,387.

According to Google:

We wanted to compare this to jobless claims to see what the correlation looked like. Utilizing the same time frame, we noticed something about the jobless claims when adding some moving averages. The 50 day and 200 day moving averages are popular trends/smoothing mechanisms, but more importantly when they cross each other it can be a powerful indicator that a longer-term trend is at hand. Depending on how they cross this occurrence is known either as a “Golden cross’ or a “Death cross”. If the 50 day is moving up through the 200 day that is considered the Golden cross, and the trend for the underlying metric is upward, and if the reverse occurs the trend is lower.

The point here is that the last time, not including the Covid pandemic, we had such an occurrence with the Jobless claims 4 week moving average, mid 2008, the metric moved 85% trough to peak.
Those moving averages just repeated that event.

Maybe it’s worth keeping an eye on those WARN notices going forward?


Notable Posts

Interesting post on the grid:

Notable post on treasuries:

https://x.com/SecScottBessent/status/1935027160374210573 



Have a great weekend!

Best,

Meraki trading team