Guess who’s back (back back) back again

Finding new highs

Consumer prices rose by a whopping 8.5% in March on an annual basis, which is the steepest increase in prices we’ve seen since the end of 1981. This was a touch higher than expectations for an 8.4% inflation print. Unfortunately for the average consumer, despite the strong wage growth we’ve seen, it’s still falling short of price increases, resulting in real wage growth actually being slightly negative.

Moral of the story: Many economists are calling this “peak inflation” as expectations are for the rate of growth to start moderating from here. I’m not so sure about that given we also got a look at the March producer prices, which are up 11.2% compared to a year ago, which is a record for this data. That’s a pretty meaningful increase and it takes some time for higher producer prices to flow through to consumers, meaning additional price increases for consumers are still likely ahead.

BRB crying paying $4.50 for gas

Unsurprisingly, the wild increase in gasoline prices is eating away at a large share of consumer spending these days. While total retail sales increased 0.5% in March, if you take gasoline sales out of the equation (which jumped 8.9% in one month ugh),retail sales actually fell by 0.3%. Sales across the other categories were fairly mixed – auto and online sales decreased while spending increased for clothing, appliances, electronics, and food.

Moral of the story: Retail sales reports aren’t adjusted for inflation – if you do adjust for inflation, we probably saw retail sales peak in March 2021. Thankfully consumers built a nice little treasure chest of cash from all the government stimulus/not being able to spend on anything during the pandemic, which is helping people get through the current state of inflation. But it’s pretty clear that the current conditions aren’t sustainable.

Earnings season is back again

I actually feel like the last earnings season only wrapped up two weeks ago and the next one is already starting. Two big companies released a mixed bag of results this week. First up was JPMorgan Chase, reporting a $524m hit from sanctions against Russia, and despite earnings that came in better than expected, profits for the financial giant fell 42% compared to the first quarter last year, sending the stock down. Delta Air Lines, on the other hand, forecast a return to profitability this quarter and reported a much narrower loss than expected as business and leisure travel demand is extremely strong despite rising prices. Unsurprisingly, Delta’s stock reacted very positively to this earnings release.

Moral of the story: The stock reactions were really based on the tone from management. JPMorgan CEO’s tone was super somber, focusing on the possibility for the central bank’s shift in monetary policy pushing the economy into a recession. On the other hand, the Delta CEO was super enthusiastic about the level of demand they’re seeing for travel returning to pre-COVID levels.

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