Inflation, What Inflation?

united states inflation pce price index decline chart year 2023

We typically have a song or two in my head. After all, watching ticks is musical and has a lot of different beats. And typically, those songs turn into market parodies.

For this past week, the first song was sealed in our brains after Tesla’s extraordinary run. 

And then again after Friday’s PCE (Personal Consumption Expenditure) inflation numbers were released. Core PCE excludes food and energy.

PCE includes health care, education, haircuts, hospitality and more, accounts for about 50% of consumption. 

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Powell has called it “the most important category for understanding the future evolution of core inflation.” 

The first song?

Reasons to be Cheerful 1,2,3 Ian Dury and The Blockheads  

So, we got 1 (Tesla) and 2 (Softer Inflation) – what is 3?

fed funds rate versus core pce index history united states chart

Reason 3 

Note on the chart that the Fed Funds rate is now inline wit the Core PCE rate.

Powell should be doing a happy dance as this gives him the ammo to….

direct us to the next song

When Doves Cry Prince.

However, as doves fly so will inflation….the ultimate conundrum we have been writing about (see the Outlook 2023)

Pretty significant bounce in lumber prices.

You see our dear readers, as rates soften, as Fed pauses, as markets rally, as consumers spend money, as as as….

Commodities wake up. It’s a vicious cycle.

A simple economic formula of supply and demand.

Our Big View tool is invaluable in showing you the ratios among all the commodities and inflation ratios.  

Many raw materials remain in low supply. Copper, lithium, sugar, steel, to name a few.

And speaking of sugar, Friday the price closed above 21 cents a pound. CANE, the Sugar Fund ETF closed on a new yearly high.

sugar prices inflation chart 1970s 1980s

In 1972, supply shortfalls and rising demand, along with the devaluation of the dollar all contributed to a large increase in the price of sugar. 

By February of 1974, rising inflation, rising demand, and the perception of imminent shortages, sugar prices spiked to over 65¢ in November.

Now in 2023, there is speculation that smaller sugar output in India will force the country not to allow additional sugar exports.

Furthermore, reduced sugar production in Europe may force European sugar and food manufacturers to import sugar, leading to tighter global supplies.  

If sugar is a barometer and mirror of the 1970’s, well here’s a bonus song for you all-

1979 Smashing Pumpkins “That we don’t even care as restless as we are..” 

Mish in the Media

BNN Bloomberg 01-27-23

Making Money with Charles Payne 01-26-23

The with JD Durkin 1-26-23

Stock Market ETFs Trading Analysis & Summary:

S&P 500 (SPY)
 SPY has crossed the 200-DMA and is now slightly above it, but is still a very narrow price range below to 50-DMA. Held pivotal support and now what was resistance is support at the 200-DMA and resistance is no longer 405, but 408 overhead. 

Russell 2000 (IWM) Filled the gap and continued to hold the 200-DMA and overhead resistance at 189 still. Closed at 189.58 resistance now 190.66

Dow (DIA) Back over the 50-DMA and holding support at the 50-DMA and 341 is resistance still.

Nasdaq (QQQ) Crossed the 50-DMA last Friday and closed above this Friday the 200-DMA and 50-DMA. First level of resistance is 299 at the 200-DMA and 200-DMA is support.

Regional banks (KRE) First level of support is 50-DMA now. It closed slightly above.

Semiconductors (SMH) Still holding key support easily at the 50-WMA and 200-WMA. 237 is still support and resistance 243.

Transportation (IYT) First level of support holding 227 with resistance at 231. 

Biotechnology (IBB) Still best sector with 132 key support still holding and holding first level of support at 134 now with 139 still resistance.

Retail (XRT) Holding pivotal support at 63. First level of support at 66 resistance is still 70.

Twitter: @marketminute

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not represent the views or opinions of any other person or entity.