by Bryan Perry
April 30, 2024
Last year’s well-defined downtrend for inflation (2% in the “core” PCE in the second half of 2023) made it look like the Fed was nearly triumphant in reaching its 2% target rate. However, some super sticky components of shelter and services showed no signs of softening, and professional services continued to remain elevated. And now, we can add medical, insurance, and education, as inflation is rising once again.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Both the PCE Price Index and the core-PCE Price Index, which excludes food and energy, were up 0.3% month-over-month, with year-over-year gains at 2.9% and first quarter gains up an annualized 3.7%. Both energy and food prices are pushing higher during April, so this trend should continue in the April data.
There are also renewed price increases for other commodities, such as copper, just when it was thought that the EV boom had hit pause, after 18 months of sequentially higher interest rate hikes by central banks would slow construction of residential and commercial projects. Copper is considered the global proxy for economic health. As it stands, copper prices are breaking out to the upside, at $4.574 per pound.
Copper is rising on supply constraints and growing demand as the world transitions toward cleaner energy. Some Bank analyst are predicting that copper has entered a new secular bull market, where prices will average $10,000 per ton this year and climb to $12,000 per ton by 2026.
As countries continue to recover from the pandemic, copper is seeing accelerating demand, when recession was all the talk coming into 2024. Wall Street’s newfound bullish stance on copper is also contributing to the recent uptrend that has caught most investors flatfooted. Copper surged toward $4.60 per pound and briefly broke the threshold of $10,000 per ton for the first time in two years in London.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Rising oil and copper prices are not the only commodities moving up. Most commodities have charts showing prices trending up. The CRB Index increased 44.57 points (+14.8%) since the start of 2024, according to trading on Contract for Difference (CFD) that tracks the benchmark for the CRB.
Going into 2024, it was widely thought that a protracted slowdown in China and Europe, the second and third largest global economies, would keep a lid on commodity prices, but that seems no longer to be true.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Lastly, the housing shortage in the U.S. just seems to never keep up with demand, for both new homes and rentals. The shelter component accounts for one-third of total expenditures on goods and services in the Consumer Price Index (CPI). It is the largest expenditure category within the CPI, reflecting costs associated with housing, including owners’ equivalent rent of residences and rent of primary residence.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Here too, the chart of the shelter index is up over 5% in the last year, and showing no sign of tapering, reflecting a tight supply and near full employment as key supports in the rising cost of shelter. Until there is some softening of food, energy, hard commodities, services, and housing, the Fed’s base case for 2% inflation looks fanciful at best, with a clear possibility of there being no rate cuts in store for 2024.
Currently, the price trends are not the Fed’s friends. The economy is growing despite 11 previous rate hikes and several sticky price increases. There is an old saying that ‘the cure for higher prices is…higher prices.” To be sure, if these trends continue, there will be an inflection point, where spending does slow, but that time is now further out, given the upward guidance by home builders and domestic automakers.
Fortunately, it seems like the stock market is resetting expectations for the outlook for rate cuts, and thereby embracing growth as an equally important catalyst for the bull market to continue marching on.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Perils of Owning the Wrong Tech Stocks
Income Mail by Bryan Perry
Three Percent Inflation Looks Like “The New Normal”
Growth Mail by Gary Alexander
Slower GDP Growth Surprised Analysts (But Not Us)
Global Mail by Ivan Martchev
The Case of the Disappearing Rate Cuts
Sector Spotlight by Jason Bodner
Selling is a Bull Market’s “Pressure Release Valve”
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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