The Week in Charts (9/18/24)
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The most important charts and themes in markets and investing…
1) The Inflation Downtrend Continues
The downtrend in US inflation continues, with headline CPI falling to 2.5% in August. That’s the lowest inflation rate since February 2021.
While still above the Fed’s 2% target, the rate of inflation is now 6.6% lower than the cycle peak of 9.1% in June 2022.
What’s driving that decline?
Lower inflation rates in every major component of CPI…
2) The Best News in the Inflation Report
The best news in the CPI report: lower food price inflation.
The 0.9% increase in the past year was the smallest we’ve seen since May 2021, down from a peak of 13.5% in August 2022.
And with hourly earnings up 3.8% over the past year, this is now the 16th straight month of positive real wage growth. That’s great news for the American worker that hopefully continues.
3) Housing Inflation Remains Elevated
While overall inflation moved sharply lower in August, core CPI (excluding food/energy) ticked up to 3.3% from 3.2% in July. This is now the 40th consecutive month with core inflation above 3%, the longest stretch since the early 1990s.
The biggest factor driving higher rates of core inflation continues to be Shelter, which unexpectedly moved up to 5.2% in August. But with asking rents down 0.8% in the last year (the 15th straight YoY decline), these high Shelter CPI levels are not anticipated to last much longer.
4) The Most Absurd Number in CPI
What’s the most absurd number in CPI?
That’s easy. According to the US Government, the cost of health insurance has declined 31% over the last 2 years and 10% over the last 5 years.
Meanwhile, here’s what the average US family health insurance premium has cost since 1999…
- 1999: $6k
- 2002: $8k
- 2005: $11k
- 2008: $13k
- 2011: $15k
- 2014: $17k
- 2017: $19k
- 2020: $21k
- 2023: $24k
That’s a 314% increase (6.1% per year) versus an 83% increase in US CPI (2.5% per year).
The biggest beneficiaries of this massive increase?
Health insurance companies.
UnitedHealth Group (the largest US health insurer) is up 11,160% since 1999 vs. 479% gain for the S&P 500.
Auto insurance rates in the US have increased by 51% over the past 3 years. That’s the biggest 3-year spike since 1975-78.
While extremely painful for American drivers, this has been a boon for car insurance companies. Progressive stock is up over 1,100% in the last decade versus a 240% gain for the S&P 500.
6) What Should/Will the Fed Do?
What should the Fed do when it meets this week? And what will they actually do?
I ran two polls on X asking these questions…
The consensus: the Fed should cut rates by 25 bps and they will cut rates by 25 bps, with a 50 bps cut seen as the next most likely outcome.
As for market participants, they are currently favoring a 50 bps cut (65% to 35%).
Regardless of whether the Fed cuts 25 or 50 bps, many more cuts are currently being priced in over the next 15 months, with the Fed Funds Rate expected to end 2025 below 3%.
Over the last 4 months, the US Federal Government has spent $1.63 trillion more than they’ve taken in…
- May 2024: -$347 billion
- June 2024: -$660 billion
- July 2024: -$244 billion
- August 2024: -$380 billion.
That spending spree has helped push the budget deficit back above $2 trillion, its highest level in over a year.
8) A Few Interesting Stats…
a) An index of Rolex Watch Prices is at its lowest level since November 2020, down 30% from the peak in March 2022.
b) Bitcoin (+43%) and Gold (+25%) are the top performing major assets in 2024. We’ve never seen these two in the #1/#2 spots for any calendar year.
c) Global Inflation Rates…
d) Global Growth Rates…
e) Truflation’s real-time US inflation gauge has moved down to 1.06%, the lowest level since July 2020.
And that’s all for this edition. Have a great week everyone!
-Charlie
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