Part 2: Inflation and its Impact on the Trades

As noted last week, there is a prevailing market sentiment that people have less money for repairs and replacements. Upon examining the actual economic data, we realized in Part 1 (click here) that savings have significantly declined from their COVID peak and, in fact, have fallen below the pre-COVID run rate.

With this in mind we shift our focus today to the Consumer Price Index (CPI) which is the generally accepted measure of US inflation. As illustrated in the chart above, we can see that the blue line, which indicates the quarter-on-quarter change in the inflation rate, has shifted upwards and done so at an unusually accelerated rate since Q2 2020. Not only is such inflation unusual, but the rate of that change is something we haven’t seen in the US since the late 1970s.

It’s worth noting that this data can be deceptive, as the computation here is the quarter-on-quarter Movement, and not the net change in inflation over time. As a result, the graph hitting zero simply means there has been no additional inflation since the last quarter, not that inflation has gone to zero.

But what we can infer is that the reduction we've seen in savings directly coincides with the increase in inflation. The rise in inflation has driven up the cost of items across the board, impacting total savings.

It's clear looking at the trend that inflation is here to stay and persistent. Ideally, we'd like to see it go negative and give back some of those gains; however, it appears to be stickier than expected. The silver lining here is that inflation is not continuing to accelerate; hopefully, we can finally have some stability in pricing going into 2024 (fingers crossed).

In our next email, we will delve deeper into another critical aspect impacting the financial landscape. Stay tuned.

If you have any questions or concerns, feel free to shoot schedule some time to talk @ www.ServiceProCFO.com