7.9% INFLATION, HIGHEST IN 40 YEARS

Inflation? I barely know her. In the time span of two weeks local gas prices have continued to rise higher as tensions overseas continue. On Thursday the national average for prices at the pump broke the record set one day prior. California residents were paying a $5.69 average for a gallon of gas, according to AAA numbers. On Thursday, the consumer price index reported inflation at 7.9%, the highest it has been in 40 years. Some economists are projecting 8 to 9% in the near future based on the rise of prices across the board. 

Oil rose to near 2008 highs as oil futures hit $130/bl and have since lost 19%. It is unlikely that the prices will continue higher as history shows large spikes in oil prices are short-lived. In my last post that briefly covered Ukraine and oil, I mentioned that the issue wasn’t the increase in demand but a reduction in supply onset by the pandemic. That cut back in production has added fuel (get it) to the fire as sanctions on Russia have been imposed. As we head into spring and summer, fuel prices will likely stabilize where they are as travel around the country picks up. Next week’s Fed meeting will hope to combat inflation as a 25 basis point hike is in order. 

“25 basis points next week seems just about a lock,” Wells Fargo director of rates strategy Michael Schumacher said. “The Fed’s in a tough spot. It’s getting tougher by the day. It’s hard any time, but especially when you’ve got incredible inflation, and we’ve had the supply chain issues for a while, and now they’ve been exacerbated by Russia-Ukraine.” Food prices are seeing an increase as commodities like wheat and corn see large increases in such a short time span. Food prices were up 1% in the last month and rent was up about half a percent. The next inflation number will likely increase and hopefully peak at 8 to 9% as the Russia/Ukraine tensions get priced in. As it stands the market is anticipating 6 rate hikes this year, but it’s been the same story for months. Some banks and economists believe a 50 basis point hike by May is in order but we’ll have to wait for Jerome Powell to speak on it.