As you observe the data flow below, it would be fair for you to believe this cycle of inflation has peaked and is now rolling lower.  I believe that is true but don’t forget that even if the inflation inputs are going down, inflation is still increasing, just at a slower rate.

Yes, the October 2022 Producer Price Index (PPI) at +8% is better than March 2022 at +11.70%, but +8% inflation at the input level is still a ton of inflation.  Notice also how slow the roll off is.  It has taken seven months to reduce from +11.70 to +8%.

It would not surprise me to see it take another seven to twelve months to get back to 4%.  If so, that would fall right in line with my first guess that it would “take a few years” to normalize.

The Producer Price Index (PPI) measures inflation at the factory “input” level.  This month’s data continues to support the fact that we have seen the peak of the inflation increases with input costs continuing to drop again this month.  More importantly, let’s look at the trend:

                        2022 PPI

            January         10.10%

            February        10.40%

            March             11.70%

            April                11.70% --------likely peaked

            May                 11.20%

            June               11.10%

            July                   9.80%

            August             8.70%

            September       8.40%

            October            8.00%

Like the PPI above, the Consumer Price Index (CPI) appears to have peaked.  In the data flow below notice the peak in the CPI appears to be in June of 2022 versus March of 2022 on the PPI.  Historically, there is about a 3-month lag between when the input costs for PPI go up and when the causal effect hits the CPI.

The Consumer Price Index (CPI) is meant to measure inflation at the household level.  This month’s CPI came in at +8.20% (very high), but again, let’s look at the trend:

                        2022 CPI

            January         7.50%

            February        7.90%

            March             8.50%

            April                8.30%

            May                 8.60%

            June               9.10% --------likely peaked

            July                 8.50%

            August           8.30%

            September     8.20%

            October          7.70%

Certainly, the trend down is not as steep as PPI above, but an improving trend!

I’m interested in your thoughts, comments, and observations.  Feel welcome to call, email or stop by the office and say Hi.

Respectfully,

James O. Lunney, CFP®

CERTIFIED FINANCIAL PLANNER™ Professional  

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.