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Peak Inflation is Never Truly Here

July CPI fell from 9.1% to 8.5% on a year-over-year basis and was flat month-over-month. But even if inflation growth stays at 0% MoM through the end of…

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July CPI fell from 9.1% to 8.5% on a year-over-year basis and was flat month-over-month. But even if inflation growth stays at 0% MoM through the end of 2022, CPI will still be up more than 6.3% YoY.

The most recent release of the Consumer Price Index (CPI) showed good news – good news for the Federal Reserve, good news for the consumer, and good news for the U.S. economy. However, it was not likely to be "peak inflation" because inflation, as measured by the CPI, never truly peaks.

The July read of the CPI fell on a year-over-year basis from 9.1% to 8.5% and, more importantly, was flat on a month-over-month basis. The July read is the first that did not show a month-over-month increase since the May 2020 report, when we had a decrease of 0.1%. This monthly drop in the CPI was the last negative reading in a streak of three that occurred from March 2020 through May 2020, driven by pandemic-driven demand destruction. According to the St. Louis Federal Reserve's "FRED" website, in the week ending April 4, 2020, over 6.1 million U.S. workers filed for their first week of unemployment benefits, representing the highest number of initial claims in history.

Graphic: Initial Jobless Claims

Before that, to find even two consecutive months of negative month-over-month CPI growth, you have to go back to August and September of 2015.

People either forget or don't realize that the Consumer Price Index is precisely that – an index. When the U.S. Fed refers to its price stability mandate, they define it as an average of 2% growth in inflation on a year-over-year basis. When the CPI data is released every month, we see the rate of change in the index, which is almost always positive. Simply put, prices for the basket of goods represented by the CPI are almost always rising.

Graphic: Consumer Price Index – All Items for the United States

Many commodities, such as crude oil, corn, wheat, and copper, have dropped in price recently. Gasoline prices have fallen substantially at the pump, a total of 20.45% since June 14 through Aug. 11. Prices were still 25.27% higher than a year ago yesterday and approximately 81% higher than they were in early August 2020.

Graphic: 36 Month Average Retail Price Chart

Prices of consumer goods rose so fast that, according to research done by Bank of America, even if we had 0.0% month-over-month inflation growth through the end of the year, the year-over-year rate of change in CPI would still be greater than 6.3%.

Graphic: Not Enough PIVOT Catalysts Thus Far ... Headline U.S. CPI Inflation (Potential Paths)

Friends and family ask me daily when prices will start going down. The complex answer is that some prices are going down right now, but the more accurate answer is they're not going back down to past levels for the foreseeable future, and maybe never on some products like autos and healthcare or healthcare insurance.

According to the U.S. Bureau of Labor Statistics, prices for new cars are 9.01% higher in 2022 versus 2021 (a $3,151.75 difference in value on a vehicle that was $35,000 in 2021). In other words, for an equivalent purchase, cars costing $35,000 in 2021 would cost $38,151.75 in 2022. Compare that to a rise of only 4.47% from 2009 to 2019!

Even if car inflation slowed to 0.5% from the current 9.01%, a significant and unlikely drop, that $35,000 car would now cost $38,170.83. Reports would say that price inflation on autos has slowed from over 9% to just 0.5%, and that would indeed be a victory, but you may never see that same new car priced at $35,000 again.

A peak in the year-over-year and month-over-month rate of change in the CPI may be here, but "peak inflation" is not, as that phrase implies falling prices. What will help consumers if CPI rarely decreases? An increase in "real earnings." The definition of real earnings is an individual's income after considering the impact of inflation.

According to the BLS, "from July 2021 to July 2022, real average hourly earnings decreased 2.7%, seasonally adjusted. The change in real average hourly earnings, combined with a decrease of 0.9% in the average workweek, resulted in a 3.5% decrease in real average weekly earnings over this period."

Unfortunately, this negative trend in real earnings may reverse slowly, especially if the FOMC continues on the path of tightening monetary policy. Considering that peak inflation is not here and continues to run well above the Fed's intended target of 2%, more Fed tightening seems a likely outcome.

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International

Global Wages Take A Hit As Inflation Eats Into Paychecks

Global Wages Take A Hit As Inflation Eats Into Paychecks

The global inflation crisis paired with lackluster economic growth and an outlook…

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Global Wages Take A Hit As Inflation Eats Into Paychecks

The global inflation crisis paired with lackluster economic growth and an outlook clouded by uncertainties have led to a decline in real wages around the world, a new report published by the International Labour Organization (ILO) has found.

As Statista's Felix Richter reports, according to the 2022-23 Global Wage Report, global real monthly wages fell 0.9 percent this year on average, marking the first decline in real earnings at a global scale in the 21st century.

You will find more infographics at Statista

The multiple global crises we are facing have led to a decline in real wages.

"It has placed tens of millions of workers in a dire situation as they face increasing uncertainties,” ILO Director-General Gilbert F. Houngbo said in a statement, adding that “income inequality and poverty will rise if the purchasing power of the lowest paid is not maintained.”

While inflation rose faster in high-income countries, leading to above-average real wage declines in North America (minus 3.2 percent) and the European Union (minus 2.4 percent), the ILO finds that low-income earners are disproportionately affected by rising inflation. As lower-wage earners spend a larger share of their disposable income on essential goods and services, which generally see greater price increases than non-essential items, those who can least afford it suffer the biggest cost-of-living impact of rising prices.

“We must place particular attention to workers at the middle and lower end of the pay scale,” Rosalia Vazquez-Alvarez, one of the report’s authors said.

“Fighting against the deterioration of real wages can help maintain economic growth, which in turn can help to recover the employment levels observed before the pandemic. This can be an effective way to lessen the probability or depth of recessions in all countries and regions,” she said.

Tyler Durden Mon, 12/05/2022 - 20:00

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Metaverse comes in second place as Oxford’s word of the year

The term describing an internet-enabled virtual world lost to "goblin mode" in 2022 — "a type of behavior which is unapologetically self-indulgent, lazy,…

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The term describing an internet-enabled virtual world lost to "goblin mode" in 2022 — "a type of behavior which is unapologetically self-indulgent, lazy, slovenly, or greedy."

“Metaverse” has come in second to “goblin mode” as the Oxford University Press’ 2022 word of the year after the process was opened up to voters for the first time ever.

In a Dec. 4 announcement, Oxford Languages said the viral term “goblin mode” beat out “metaverse” and #IStandWith to become its 2022 word of the year. According to Oxford’s research, usage of the term metaverse “increased almost fourfold from the previous year in the Oxford Corpus,” driven in part by Facebook’s rebranding to Meta in October 2021.

Metaverse lost to goblin mode, which went viral in February, as it seemingly “captured the prevailing mood of individuals who rejected the idea of returning to ‘normal life’” following COVID-19 lockdowns being lifted in many areas. #IStandWith took third place in the contest, driven by social media hashtags including #IStandWithUkraine following Russia’s invasion of the country in February.

“As we grapple with relatively new concepts like hybrid working in the virtual reality space, metaverse is particularly pertinent to debates about the ethics and feasibility of an entirely online future," said Oxford Languages. "A worthy opponent to ‘goblin mode’, ‘metaverse’ gained voting traction with crypto communities and publications. We see the term continue to grow in use as more voices join the debate about the sustainability and viability of its future."

In the video pitch for ‘metaverse’ released in November, Oxford said the term dated back to “the science fiction novel Snow Crash by Neil Stephenson,” released in 1992.

More than 300,000 people cast votes between the three terms shortlisted by Oxford Languages.

Related: The metaverse is happening without Meta's permission

“NFT,” or nonfungible token, won Collins Dictionary’s contest for the word of 2021, while “vax” took first place as Oxford’s chosen word that the same year. The latest results seemingly represent a change in social media fervor around the crypto-related terms, which was reportedly falling in the first quarter of 2022.

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United Airlines stock has a 50% upside from here: Morgan Stanley

United Airlines Holdings Inc (NASDAQ: UAL) is keeping in the green on Monday in an otherwise down market after a Morgan Stanley analyst said 2023 could…

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United Airlines Holdings Inc (NASDAQ: UAL) is keeping in the green on Monday in an otherwise down market after a Morgan Stanley analyst said 2023 could be a “goldilocks” year for the air carrier.

United Airlines stock has upside to $67

Ravi Shanker sees upside in the airline holding company to $67 that translates to a near 50% premium on its current stock price.

He upgraded United Airlines stock to “overweight” this morning because he’s convinced that international travel will recover swiftly in 2023.

Earnings recovery post pandemic has kept pace with, if not led, peers and messaging has been very confident. We expect more normalised, just right conditions in 2023, stabilizing at level more favourable to earnings that market is pricing in.

Shanker expects continued leisure demand next year while business travel, he wrote, could exceed levels last seen before the COVID pandemic.

UAL has outperformed peers year-to-date

According to the Morgan Stanley analyst, prices will ease in 2023 as capacity returns. CASMxF trajectory was among other reasons cited for the bullish call.

United Airlines stock is roughly flat for the year at writing versus other major airline stocks in the red. Still, Shanker continues to see its current valuation as attractive. His note reads:

United Airlines Holdings Inc seems on track to exceed its 2023 guidance and to hit its 2026 guide issued eighteen months ago – something even the biggest UAL bulls may have considered difficult at the time.

In October, the Chicago-headquartered air carrier reported its financial results for the third quarter that handily topped Street estimates.

The post United Airlines stock has a 50% upside from here: Morgan Stanley appeared first on Invezz.

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