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A Deeper Dive Into October’s Lower Inflation

November 17, 2022 by Paul Myers, Myers Capital Management

In our last post we noted that the inflation numbers for October reported last week were lower than the previous month. JP Morgan, one of the Portfolio Strategists we utilize for client accounts, said the following about what is behind this inflation data in their Weekly Market Recap this week…

After peaking at 9.1% year over year in June, inflation has slowly been receding. The October CPI report confirmed this trajectory as headline CPI surprised to the downside at 7.7% year over year – its smallest year over year increase since January. Core CPI also moderated to 6.3% y/y, down from6.6% year over year in September.

We are seeing gathering evidence of disinflationary forces at play, the most notable being a cooling economy and improving supply chains. First, the Fed’s aggressive rate hikes appear to be working and October’s CPI report should give the Fed confidence to slow to 50 bps in December. Second, easing supply chains are acting as disinflationary tailwinds for core goods. The Global PMI suppliers’ delivery time index has returned to its pre-covid normal 1) inventories have matched up more evenly with demand and 2) demand has cooled modestly due to higher rates. Global PMI input and output prices have also moderated, down 7.7 points and 8.1 points from their springtime peaks respectively. Beyond PMIs, port congestion has also improved. In January 2022, there were 100+ ships waiting to get into the Port of Los Angeles. Now, it hovers below 10 – a welcome sign of collapsing bottlenecks. As illustrated in the chart, the October 2021 peak in delivery times preceded the February 2022 peak in core goods inflation. As such, further improvements in supply chains should continue to act as a dampener on core goods inflation, albeit on a lag. In October, core goods inflation came in at 5.1% year over year, down from 6.7% year over year in September and its smallest year over year increase since April 2021. We expect this trend to continue as supply chains retreat to status quo. While inflation is finally moving away from its firmest period, risks for Fed overtightening still linger. Against this backdrop, investors should continue remaining defensive with well diversified portfolios at this time.

Filed Under: Myers Cap Post

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The Myers Cap Post

  • Leading Economic Index Again Declines in February
  • Fed Decision And The Banking Crisis
  • Fed Raises Interest Rates Again Today
  • Inflation Lower In February
  • Banking Crisis Averted, But Risks Remain
  • February Unemployment Report and Inflation
  • February Suggests We May Not Be In A Recession Yet
  • January Retail Sales Jump
  • Recession… Is It Coming Or Here Already?
  • Opportunity in Growth, Value, or Both?
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Myers Capital Management, Inc. (“MCMI”) is a registered investment adviser located in Abington, PA. MCMI’s website is limited to disseminating general information about its advisory services and access to additional investment-related information, publications, and links. Accordingly, the publication of MCMI’s website on the Internet should not be construed by any consumer or prospective client as MCMI’s general solicitation to effect or attempt to effect transactions in securities or the rendering of personalized investment advice for compensation. We do not collect personally identifiable information about you when you visit our website unless you voluntarily provide it by sending us an email or other electronic communication(s). If you choose to share with us personal information, we will retain it in our electronic communications archive. Any subsequent, direct communication by MCMI with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. MCMI does not take any responsibility, representations, or warranties regarding the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, including website links. All such information is provided solely for convenience, guidance, and informational purposes only, and all users should be guided accordingly. Investments involve risk and, unless otherwise stated, are not guaranteed. This website and information are not intended to provide investment, tax, or legal advice and no warranties are implied. Before implementing any strategy, consult with a qualified financial adviser and/or tax professional. Insurance products and services are offered and sold through Myers Capital Management, Inc., and individually licensed and appointed insurance agents. For information about MCMI, please refer to the SEC’s investment adviser public information website at www.adviserinfo.sec.gov or upon written request from Myers Capital Management, Inc. No product or service is offered or will be sold in any jurisdiction in which such offer or solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. This web site is intended to be made available only to individuals in the United States, and the information on the web site is only for such persons. • Copyright Myers Capital Management, Inc.
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