Wholesale prices in November may have been slightly warmer than expected, but next week’s look at consumer prices is one that could solidify the Federal Reserve’s next interest rate decision. Ultimately, we think November’s consumer price index (CPI) carries more weight with the market and the Fed than Friday’s wholesale numbers, known officially as the index. producer prices (PPI). Before you overreact to Friday’s print, also consider what Club Holding Costco (COST) said about inflation in its quarterly results after the closing bell on Thursday — it appears to be trending lower, though slowly, although some areas such as fresh food remain sticky. “Remember last quarter and fourth quarter we estimated year-over-year price inflation was around 8%. ‘year-over-year is between 6% and 7%,’ Costco said. Chief Financial Officer Richard Galanti said on the company’s first fiscal quarter earnings call. “Some things are up, but overall we’re seeing a small trend,” he added. At the headline level, what the retail giant is seeing seems directionally consistent with what Friday’s wholesale price report indicated. The PPI rose 7.4% year over year, slightly warmer than the estimate for a 7.2% jump. However, the overall November figure is down from the revised annual rate of 8.1% recorded in October and 8.5% in September. The 7.4% increase in November is also the lowest annual increase in wholesale prices since May 2021. The downward trajectory on an annual basis continued despite increases in several food categories, including fresh and dried vegetables. The PPI rose 0.3% month over month – slightly above the 0.2% estimate, but the same rate of increase seen in October and September. The 3.3% year-on-year jump in the PPI Food Index is one of the most concerning data points, representing a sharp increase from the 0.8% rise October and up 1.5% in September. While Costco spoke of some food pressures – similar to what Friday’s PPI showed – we are pleased that Costco management did not warn of a serious reversal in inflation trends. To be sure, Galanti reminded investors that the situation was fluid, saying “we’ll keep you posted” on any pricing pressures he sees. But, as of now, the CFO has reported favorable price developments for commodities like corn flour, sugar and butter. Friday’s PPI did not materially change expectations for what the Fed might do on Wednesday after its two-day policy meeting in December. The market still expects the US central bank to hike interest rates by half a percentage point, which would represent a deceleration from its last four aggressive moves . The Fed has raised rates by 0.75 percentage points in each of its past four policy meetings, starting in June and most recently in November. In total, the Fed has raised interest rates six times this year to bring its key rate target between 3.75% and 4% in a bid to cool the hottest US inflation environment in years. 1980. We expect the Fed to hike by half a percentage point on Wednesday unless Tuesday’s CPI figure comes out hot and challenges the belief that the peak of inflation is in The rear view mirror. In our minds, those hopes are still alive, especially after hearing from Costco that the trends always seem to be heading in the right direction. (Jim Cramer’s Charitable Trust is long COST. See here for a full stock list.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
A butcher stocks a display case with packages of steaks at a Costco store on May 24, 2021 in Novato, California.
Justin Sullivan | Getty Images
Wholesale prices in November may have been slightly warmer than expected, but next week’s look at consumer prices is one that could solidify the Federal Reserve’s next interest rate decision.
#Costcos #Inflation #Signals #Overreacting #Rising #Producer #Prices