June 17, 2023 | Inflation, PPI, Consumers and Investment Choices

<p>Inflation Inflation continues to retreat from the high levels we saw last year. May's CPI report showed headline inflation rose 4% when compared to last year. This is a nice deceleration from last month's 4.9% gain, and it is well off last June's 9% increase. Areas that remained hot in the report included motor vehicle repair (+19.7%), motor vehicle insurance (+17.1%), and food (+6.7%). Many energy costs have seen large year over year declines and gasoline in particular is down around 20%. There are also other areas in the report that are showing declines. This includes airline fares (-13.4%), used cars and trucks (-4.2%), major appliances (-10%), and televisions (-11.5%). Core inflation, which excludes food and energy, was somewhat of a disappointment as it rose 5.3% compared to last year. While core inflation has not cooled as much as the headline number, it is important to remember that the shelter index rose 8.0% compared to last year and accounted for over 60% of the gain in core inflation. We continue to believe the shelter index will decline substantially as we exit the year and will be a major help in reducing core inflation.</p> <p> PPI More positive news on the inflation front as the Producer Price Index (PPI) for the month of May came in at a gain of 1.1% compared to last year. This compares to last month's reading of 2.3% and it is the lowest reading since December 2020. It is also well-off last May's reading of 11.1%. This continues to fuel my belief that inflation will be a much smaller problem as we exit the year. Companies no longer have the need to pass on the huge increases in prices they saw last year to the consumer. </p> <p> </p> <p>Consumers People may continue to complain about the economy, but the consumer is still spending. Retail sales in May showed a gain of 1.6% compared to last year. There are some areas that remain negative which include furniture and home furnishing stores (-6.4%) and electronics and appliance stores (-5.0%), but the biggest negative in the report was gasoline st