The recent CPI post showing inflation as high as it has been in 40+ years was a shock to the markets. That little tidbit along with a bunch of other news is what helped cause the market to continue to decline over the past couple of weeks as we wrapped up the first six months of the year. If you look deeper and start researching what’s really happening out there, you see signs that inflation on many goods might actually start decreasing, and fast, in the coming months. The big retailers like Target and other large consumer goods retailers are announcing much higher levels of inventory. You have to understand that with the supply chain issues going on and getting worse and worse over the past two years, retailers had to place orders knowing that those deliveries would take two or three times as long to arrive at the warehouse. So some of the orders that are arriving today were made between six and 12 months ago. Until recently, these companies were seeing huge sales, high demand, and long shipping times. But today, we might be on the cusp of entering a recession. People are starting to pull back on spending or transferring that spending from goods to services. If these retailers were placing orders even at the end of 2021, or early 2022, many of those deliveries won’t be happening until the summer or even fall. We might be seeing inventory levels climb for the next 6 to 12 months. And when inventory climbs, discounts start to arrive. With discounts, lower prices. Remember that inflation is not the overall price level, which is high and may remain. It is the continued increase in prices from prior periods.
This doesn’t necessarily impact the big massive scary numbers that you see every day like the price of gas or the price of food. But look at one of the other major factors in CPI and its housing. Mortgage rates have doubled in just the last few months, from roughly 3% to almost 6% for the 30-year fixed. We are seeing signs of a housing slow down and with the housing slow down and possibly lower housing prices (or at least a cessation in the continued rise in price), we should start to see some help with increasing rents as well.
All in, we should expect to see the headline CPI number start to come down as we approach the year end. For all those people who put off buying big ticket items like furniture and appliances, be on the lookout and ready to pull the trigger. You might start seeing some good pricing coming out as we enter the fall. Now if only the price of gas would come down from the current insane levels…