Investment Commentary – July 13, 2022
Year to Date Market Indices as of July 13, 2022

• Dow 30,966 (-15.09%)
• S&P 3,823 (-20.86%)
• NASDAQ 11,779 (-29.71%)
• Gold $1,707 (-6.75%)
• OIL $94.87 (25.74%)
• Barclay Bond Aggregate (-10.76)
• Fed Funds Rate 1.75-2.0

Fresh US Inflation Peak to Keep Fed on Aggressive Rate Path

•June CPI seen rising 8.8% from year ago, 1.1% on monthly basis

•Acceleration probably reflected higher prices at gas pump

Inflation continued to heat up in June, hitting a fresh pandemic peak that keeps the Federal Reserve geared for another big interest-rate hike later this month, economist’s project.

The consumer price index probably increased 8.8% from a year earlier, marking the largest jump since 1981, according to the median forecast in a Bloomberg survey. Compared to May, the widely followed gauge is seen climbing 1.1%, marking the third month in the last four that inflation has advanced at least 1%.

The acceleration is likely to reflect higher gasoline and elevated food costs. Prices at the nation’s gas pumps reached a high of more than $5 a gallon in mid-June and will add at least 0.5 percentage point to the headline CPI monthly advance, according to Bloomberg Economics ahead of Wednesday’s report.

High gas prices, which were increasing well before Russia invaded Ukraine, help explain both President Joe Biden’s dismal approval ratings and his upcoming trip to the Middle East, where he hopes to convince Arab leaders to produce more oil.

But fuel prices have started to ease this month, suggesting the CPI will simmer down beginning with the July data. Though still well-elevated, some cooling in inflation may already be in train as bloated retail inventories lead to discounts and used-car prices soften. The core measure, which excludes energy and food, probably rose 0.5% in June on a monthly basis, the smallest advance in three months.

While Fed officials have already signaled a 75 basis-point interest-rate hike at their next meeting, smaller inflation prints in the coming months could lead to less-aggressive policy action later this year.

“Inflation of course has migrated away from the goods sector and is now firmly entrenched in housing — thanks to a very tight housing market — as well as in non-shelter services,” Citigroup Inc. economists Andrew Hollenhorst, Veronica Clark and Isfar Munir said in a note.

“We continue to expect a slowing in activity and some slowing in prices but it could take time both to cool-down the overheating housing market and that may only flow through to rents with a lag,” they said.

The consumer price index probably increased 8.8% from a year earlier, marking the largest jump since 1981, according to the median forecast in a Bloomberg survey. Compared to May, the widely followed gauge is seen climbing 1.1%, marking the third month in the last four that inflation has advanced at least 1%.

Gasoline futures are dropping, which could mean more relief at the pump

•Prices at the pump have retreated from June’s never-before-seen levels but remain stubbornly high.
•Some relief could be in sight, with gasoline futures down more than 10% this week.
•Patrick De Haan, head of petroleum analysis at GasBuddy, said the national average could drop to between $4 and $4.25 by mid-August.

Prices at the pump have retreated from June’s never-before-seen levels but remain stubbornly high.

Some relief could be in sight. U.S. gasoline futures have dropped more than 11% this week, following a decline in oil prices as recession fears spark concerns around a drop-off in demand.

The national average for a gallon of gas stood at $4.75 on Thursday, according to AAA. That’s down from the record $5.016 hit on June 14. But prices are still $1.62 higher than this time last year.

California has the highest state average, at $6.185. The state’s Mono County is currently averaging $7.224 per gallon. South Carolina’s average of $4.257 is the lowest in the U.S.

Patrick De Haan, head of petroleum analysis at GasBuddy, said the national average could drop to between $4 and $4.25 by mid-August, barring a price spike in oil.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.

https://www.marketwatch.com/ (Market Indices)
https://www.jhinvestments.com/weekly-market-recap (Around the Web & Upcoming Events)
https://finviz.com/groups.ashx (YTD Performance Chart)
https://www.moneyweb.co.za/news/economy/fresh-us-inflation-peak-to-keep-fed-on-aggressive-rate-path/
https://www.cnbc.com/2022/07/07/gasoline-futures-are-dropping-which-could-mean-more-relief-at-the-pump.html