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“The road to Easy Street goes through the sewer.” – John Madden
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures were higher heading into yesterday’s CPI report and reversed sharply lower once the data was released. This morning, we have the opposite backdrop ahead of the March PPI report. While the report is unlikely to be as big of a market mover as the CPI report, the results didn’t show as much inflation pressure in the producer sector and jobless claims were pretty much right in line with expectations. The ECB just announced its latest rate decision (no change, “inflation continues to fall”) which we break down in this morning’s report, and we’ll get further color during the press conference at 8:45 Eastern. Overall, futures have rallied a bit on the news as Nasdaq futures moved into positive territory while the S&P 500 is indicated to open just marginally lower. We’ll take it!
Yesterday’s CPI report was a disappointment on all fronts, and while the rate of inflation has slowed, it’s still firmly in positive territory which helps explain why consumers are so miserable. When you consider the cumulative impact of these price increases since the lockdowns in March 2020, it adds up. March’s CPI report reached an inauspicious milestone as it was the first time since March 1991 that the four-year rate of change in headline CPI exceeded 20%. We’re still nowhere near the levels from the 1970s and early 1980s, but 33 years is a long time.
If you show the chart above to any consumer and tell them that the cost of living has increased by 20% in the last four years, they’ll probably ask where you’ve been living the last four years and want to know if there’s any room to move in. What we have all experienced seems much larger. Take a bag of Doritos, a subject we have quite an expertise on. In 2019, a 9.75-ounce bag had a suggested retail price of $4.29, but today it costs about $1.50 more and is half an ounce smaller. Ignoring the change in size, that’s still an increase of 35%! These types of examples come up everywhere you look, and while there are some examples where prices haven’t increased by over 20% in the last four years, they aren’t nearly as apparent.
Getting back to the examples of price increases, one we noticed yesterday was postage. The US Postal Service just filed to increase the price of a stamp by 8% to 73 cents in July from 68 cents, The current price, it should be noted, only took effect in January when prices increased by 3%, so this would be the second increase this year and the fourth since the start of 2023! The chart below shows the monthly price levels of a first-class stamp since 1963, and you can see how the pace of increases has picked up steam in recent years. The last time a stamp cost 25 cents was in January 1991. The last time it was 50 cents or less was in late 2018.
In the chart below, we compare the four-year change in the price of a stamp to the four-year change in CPI. If the proposed postage increase takes effect in July, the four-year price change to mail a letter will reach 32.7%, the highest level since the mid-1980s. If CPI increases at a rate of 0.3% per month between now and June (a perfectly realistic, if not conservative rate based on recent CPI reports), the four-year change in CPI will reach 22.2% which would be the largest four-year increase since December 1984. To be fair, the rate of postage inflation still lags the rates from the 1970s, but it’s large and well above the Bureau of Labor Statistics’ official gauge. We should have loaded up on those Forever Stamps four years ago!
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