Image Credit: Jevgenijs Slihto

“Core PCE” Inflation Spike – Highest 3-Month Rate since 1982

 

Fed Chairman Powell doubled down on inflation being temporary and transitory during the post FOMC meeting press conference. Despite his official position, the Fed head admitted that the recent rate of inflation was “not moderately above” the Fed’s 2% target but “way above target.” The inflation measure that the Fed says it uses for its target is the annual “core PCE,” this spiked even higher on Friday (after the Powell’s Wednesday Press conference).

In 2012, the PCE Price Index became the inflation index used by the U.S. Federal Reserve for making monetary policy decisions. Personal consumption expenditures are among the three main parts of the Personal Income and Outlays report, the most recent was released on Friday (July 30). According to the BEA, this Personal Consumption Expenditures price index, without food and energy, jumped by 0.45% in June, from May, after having jumped by 0.5% in May, 0.7% in April, and 0.4% in March. What’s noteworthy is the Fed’s 2% target compared to the gauge they use which is up 3.5% from June last year, it is the highest year-over-year rise since May 1991.

The graph below from the St. Louis Federal Reserve website is a percent change in PCE inflation measures on a semiannual basis over 20 years. The visual makes it clear that this inflation measure is currently behaving well outside of normal parameters.

 

 

The annualized rate of core PCE over April, May, and June was 6.7%, this is the highest run-rate since July 1982. Inflation has suddenly throttled up this spring and into summer. Although we’ve experienced higher inflation data historically, those price increases were always met with the Fed and the interest rate markets reacting strongly. What we have now is government officials broadcasting that inflation is not going to be long lasting, to many this temporary talk sounds reminiscent of Washington’s “only a 14-day lockdown,” and then we’ll have business as usual. It’s understandable that professionals and economic hobbyists are at home looking at the data and feeling uncertain that it is temporary. The bond market to date, often viewed as the more informed money (over stock and real estate speculation), has accepted the idea that these increases are only temporary.

 

 

So far in 2021, Fed officials have not had a perfect record.  The PCE price index, which includes food and energy, also released Friday, jumped 4.0%. Every three months (roughly, as the FED only meets eight times per year), the meeting is followed by the release of “Projection Materials,” which memorializes where FOMC members think the economy and inflation are headed. The median projection for core PCE inflation is now way behind expectations. For example, in December, core PCE projection for 2021: 1.8% the actual was only actual =1.5%. In March, the core PCE projection for 2021 was 2.0% the forecast of the surge to 2.0% was perfect. By June the core PCE projection was 2.1% the actual was 3.5% when the monthly surges are added in. A miss by an additional 1.4% over the 2.1% expectation is significant and could demonstrate a lack of grasp on what’s possible.

Fed Chair Powell was asked to explain and define at Wednesday’s press conference both why monetary policy should remain easy with inflation surging,  and to clear up what exactly “temporary” and “transitory” mean to him. He admitted that there was nothing temporary or transitory in the current inflation. The loss in dollar purchasing power is permanent; prices are not expected to go back to where they were.

What is expected to be transitory is the current pace of price increases. The starting point down the road could be 6% higher, but prices aren’t expected to continue increasing at the highest speed we’ve seen in 40 years. In that sense, each rate increase stands alone, so the pace is “transitory” or “temporary.” The use of semantics by Fed officials is an art form all to itself. 

 

Paul Hoffman

Managing Editor, Channelchek

 

Suggested Reading:

Trimmed PCE Inflation vs. the PCE Deflator

Is Inflation Going to Hurt Stocks?

A Look at Real Estate Risk to the Stock Market

Is the Bubble Michael Burry Warned About Still Looming?

 

Sources:

https://www.bea.gov/news/2021/personal-income-and-outlays-june-2021-and-annual-update

https://www.investopedia.com/terms/p/pce.asp

https://www.bea.gov/news/2021/personal-income-and-outlays-june-2021-and-annual-update

https://fred.stlouisfed.org/graph/?id=PCEPILFE,#0

 

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What’s Going on With Chartered Financial Analysts (CFAs)?

 

The CFA Institute released its pass rate for the Chartered Financial Analyst (CFA) Level 1 exams taken in May 2021. One doesn’t need a CFA level of understanding data to realize the 25% pass rate is an outlier.

Here are some additional data points for reference, the pass rate for the Level 1 exam (there are three levels) had never previously fallen below 34%. The exams have a 58 year history, and the last time it was as low as 34% was in 2005. During February of this year, the pass rate was 44% and in December 2020 it was 49%.

Is there a Covid Connection?

The CFA Institute says the exam difficulty was consistent with past years. So, has there been a surge in interest in the test from newfound budding financial analysts? Did the pandemic cause a high level of distraction from exam prep? Did the move to computer-based testing play a role?  The CFA Institute seems to suggest the low pass rate was in large part due to poorly prepared candidates.  Each of the CFA exam levels require at least 300 hours of study time. Candidates taking exams this year have had their studies disrupted by repeated exam postponements and cancellations due to COVID 19 preventative measures.

According to the CFA, “Some Level I candidates had been deferred twice prior to the May administration due to restrictions caused by the global pandemic. While some impacted candidates were able to pass, we believe the stop-start nature of the deferred candidates’ studies is reflected in the overall passing rate,”

Some CFA candidates had a different outlook. Many who failed said they’d put in more than the prescribed 300 hours. Other suggestions as to the reason for the abnormally low pass rate include:  CFA Institute is trying to raise the prestige of the CFA charter following complaints it had been watered down —  CFA Institute has recalibrated passing scores are changing the format and moving to online exams — now that exams are offered four times a year, CFA Institute knows that people will pay $1k to enter again and can therefore make more money from poor scores. These are just a few pulled from various sources.

While the final point would seem particularly cynical, it’s unlikely to have worked out anyway if true. Many of the 75% of candidates who today found out that they’ve failed Level I seem disinclined to give it another go. “Who in their right mind is going to pay $1000 for an exam knowing only 25% of people will pass. It’s a shocking decision,” said one.

The CFA Institute’s Analysis

Matthew Hickerson of the CFA Institute said the recent exams had the same level of difficulty as previous exams. “All examinations are constructed using industry best-practice psychometric data and detailed examination blueprints,” said the spokesperson. “The degree of difficulty of the May Level I exam was consistent with previous Level I exam administrations, and this is the case whether we look back to paper-based testing or computer-based testing, which we introduced in February this year.”

 

Ten Year Pass Rate for CFA Part

Background

Nearly 26,000 candidates sat for the Level I exam, which was administered at test centers around the world, according to the CFA Institute. The CFA designation is highly prized as it denotes an understanding and accomplishment that a holder can be considered among the elite. 

The CFA Program is a three-part exam taken at different times, often a year apart. It tests the fundamentals of investment tools, valuing assets, portfolio management, and wealth planning. The CFA Program is typically completed by those with backgrounds in finance, accounting, economics, or business. CFA charterholders earn the right to use the CFA designation after program completion, application, and acceptance by the CFA Institute. CFA charterholders are considered well qualified in the fields of investment management, risk management, asset management, and equity analysis.

 

Suggested Reading:

Is Interest Paid on Crypto an SEC Violation?

How Does the Gates Buffet Natrium Reactor Work?

Companies Developing Therapeutics to Fight Covid 19 Will Get a $3.2 Billion Injection

Mining Cryptos from Home Without Expensive Equipment

 

Sources:

www.bloomberg.co/news/articles/2021-07-27/cfa-pass-rate-plummets-to-record-low-of-25-for-level-1-exam

https://www.efinancialcareers.co.uk/news/2020/10/cfa-charter-is-being-degraded

https://www.cfainstitute.org/-/media/documents/support/programs/cfa/cfa-exam-results-since-1963.ashx

 

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	Image Credit: Vladamir Agofonkin (flickr)

Can Stock Market Index Enthusiasm Cause Costly Bubbles?

 

It has been 23 months since Michael Burry again caught the attention of the investment world by saying index funds are in a bubble. The discussion resurfaced again this morning in Barron’s article titled, The
Stock Market is Ridiculously Expensive, the Average Stock Isn’t.   As we approach the two-year anniversary of his Bloomberg email interview, it’s important to remember what we learned from Michael Lewis’ book The Big Short about Burry and what investors in his Scion Asset Management service sign off on before they invest with him.

The first can be summed up in this way. When Burry was figuring out how to play the other side of a real estate bubble that few saw as clearly as himself, he went all in and then waited. His positions were built over a long period of time without drawing excessive attention to what he was doing. He informed his readers through his newsletter what he thought; however, unlike many other investment newsletters, it was not written in an alarmist fashion. The trades took a long time to play out.

The second useful tidbit we learned from The Big Short story is investors grew tired of waiting and were quite concerned he may be wrong. Some even got out of their agreements. Burry, along with a few others who shorted mezzanine level CMO tranches and CDOs, had confidence that the upward trend in housing wasn’t sustainable and would one day crumble.

Burry and others shorting securities tied to housing scrambled to grow their positions because they were concerned others would see what was plain as day to them.  They wanted to first fully load the boat with shorts on assets that appeared doomed.

 

What he Told Bloomberg

On September 4, 2019, Bloomberg News posted an article from a lengthy interview with Burry, whom many consider a savant investor. His view was startling at the time; he believed that the flood of money into index funds shows parallels with the pre-2008 bubble in collateralized debt obligations. Not one to just trade on hunches, Burry backed up what he said, saying index fund inflows are now distorting prices for stocks and bonds in much the same way that CDO purchases did for subprime mortgages. He warned the flows would reverse at some point and mentioned “it will be ugly” when they do.

Burry explained, “Like most bubbles, the longer it goes on, the worse the crash will be,” At the time he liked small-cap value stocks, one of the reasons is they tend to be under-represented in passive funds. His concerns included a lack of price discovery mechanisms functioning naturally, “Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies — these do not require the security-level analysis that is required for true price discovery.

“This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.”

 

“…In the Russell 2000 Index, for instance, the vast majority of stocks are lower volume, lower value-traded stocks. Today I counted 1,049 stocks that traded less than $5 million in value during the day. That is over half, and almost half of those — 456 stocks — traded less than $1 million during the day. Yet through indexation and passive investing, hundreds of billions are linked to stocks like this…” M.B.

 

Burry’s take on liquidity risk is also hard to poke holes in; he felt many stocks have been on a free ride saying, without building a large following on their own. He said “The dirty secret of passive index funds — whether open-end, closed-end or ETF — is the distribution of daily dollar value traded among the securities within the indexes they mimic. In the Russell 2000 Index, for instance, the vast majority of stocks are lower volume, lower value-traded stocks. Today I counted 1,049 stocks that traded less than $5 million in value during the day. That is over half, and almost half of those — 456 stocks — traded less than $1 million during the day. Yet through indexation and passive investing, hundreds of billions are linked to stocks like this. The S&P 500 is no different — the index contains the world’s largest stocks, but still, 266 stocks — over half — traded under $150 million today. That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.”

 

“…That sounds like a lot, but trillions of dollars in assets globally are indexed to these stocks. The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally…” M.B.

 

Although he didn’t give a time frame in late 2019, he said it wouldn’t end well. He discussed how advisors are helping to build the problem by placing clients in indexed funds rather than more active management and lowering their fees to attract more assets; this helps the problem snowball. “Potentially making it worse will be the impossibility of unwinding the derivatives and naked buy/sell strategies used to help so many of these funds pseudo-match flows and prices each and every day. This fundamental concept is the same one that resulted in the market meltdowns in 2008. However, I just don’t know what the timeline will be. Like most bubbles, the longer it goes on, the worse the crash will be.” Said, Dr. Burry

Although it seemed surprising and even unbelievable at the time when the unraveling in the mortgage market began 13 years ago, it quickly became obvious that the market was allowed to become over-inflated (pronounced bubble) because the normal pricing mechanisms were stifled. Other investors eventually saw what Burry had seen much sooner; by then it was too late.

In an article this morning (July 28) in Barron’s, it seems they are beginning to make the same arguments that Michael Burry made almost two years ago. The Barron’s piece is titled, The Stock Market is Ridiculously Expensive, the Average Stock Isn’t.

The Barron’s Article Take on Today’s Market

The overriding claim in the reporting by Jacob Sonenshine is the stock market as a whole might look expensive, but there is value to be found in most companies in the S&P 500 (S&P). 

The reason given is the index weighs stocks with larger market caps greater than lower-valued companies. The S&P is currently trading at 21.4 times the aggregate forecast earnings per share of the companies that make it up. That, according to Barron’s is 43% above the long-term average of 15 times. If the influence of market cap was removed and all stocks were weighted equally, the average valuation would be 19 times forecasted earnings, according to Morgan Stanley, this is down from the high this year of 21 times. The decline resulted from sectors like energy selling off.

Investors are concerned that companies like Facebook, Apple, Amazon, Netflix, Google, and Microsoft are why the standard market cap weighting of the S&P appears expensive. According to Barron’s article, the six companies, with a combined market value of $9.4 trillion, account for a quarter of the index’s aggregate value.

They have outperformed the index recently, with an average gain of 4.9% in the past month. The S&P 500 is up 2.6% over that time. The thinking presented in the article is that investors who are positive about the economy are likely to be able to find value by picking stocks that demonstrate value rather than subjecting themselves to the lack of diversification weighted heavily toward those that are overvalued by traditional measures.

Take-Away

Don’t grow impatient with convictions, but timing is difficult. There is no certainty as to whether index fund investing has run its course and created unsustainable bubbles. However, the arguments made almost two years ago by someone who amassed great wealth back in 2008, shorting CDOs, is now being adopted by more mainstream thinking.

When evaluating small-cap stocks, remember your Channelchek registration allows you access to research and data on 6000 prospects that may fit your portfolio.

Paul Hoffman

Managing Editor, Channelchek

Suggested Reading:

Michael Burry Tweets Advice on Cryptocurrencies

Michael Burry Says COVID-19 Cure Worse Than the Disease

Why Microcaps are the New Small-Cap Stocks

Index Funds May Still Fall Apart Over Time

 

Sources:

https://www.barrons.com/articles/s-p-500-expensive-valuation-average-stock-51627417874?mod=hp_LEADSUPP_2

https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos

 

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Is Amazon Getting Primed for Cryptocurrencies?

 

There has been a lot of uplifting news related to Bitcoin and the prospect of the cryptocurrency becoming mainstreamed. Less than two weeks ago Jack Dorsey the CEO of the fintech powerhouse Square, said Square
is building a decentralized finance business using bitcoin. Last week the Ark Invest sponsored conference named The
B Word featured celebrity CEOs such as Elon Musk and Cathie Wood touting the benefits of Bitcoin.  This morning speculators in the asset woke up to a much more subtle reason to be optimistic. Amazon, the mega-giant of online retailers, ran a help wanted ad. The ad was for a “digital currency and blockchain lead.”

Certainty as to what Amazon’s plans are is not available outside the confines of the higher echelons of Amazon. However, the widely embraced hunch is that the open position is to create a team responsible for how Amazon’s customers pay on its platforms.  The possibility that the most influential leader in high tech retailing may begin to accept the currency sparked a 12% increase to levels not experienced in six weeks.

 

“…in this role you will: · Own the vision and strategy for Amazon’s Digital Currency and Blockchain strategy and product roadmap · Write documents that work backwards from customer and partner needs · Dive deep into customer and system data to perform analysis · Partner effectively with other leaders in product, design, marketing, engineering, science and business intelligence to influence priorities and drive alignment · Maintain excellent judgment on prioritization between focusing features, architectural improvements and operational excellence · Monitor project execution and ensuring that the project delivery is to the appropriate levels of quality and in line with target dates

                 Excerpt from Amazonjobs, Job ID: 1644513 

 

London newspaper City A.M. quoted an anonymous source expressing that the job post is just the surface of a more committed push into the space. “It begins with bitcoin – this is the key first stage of this crypto project, and the directive is coming from the very top… Jeff Bezos himself,” according to the unnamed source.  Bezos stepped down as CEO of Amazon in early July. He remains executive chairman of the board of directors. The unnamed source was also quoted by the London paper as saying, “Ethereum, Cardano, and Bitcoin Cash will be next in line before they bring about eight of the most popular cryptocurrencies online.” The source also claimed that Amazon’s crypto push has been in motion since 2019.

Take-Away

There has been a big move in recent weeks by influential CEOs to bring out the full potential of the more widely traded cryptocurrencies. The most recent impacted Bitcoin’s price by 12%, although it is not very definitive what Amazon’s plans are, and reports rely on anonymous sources. Looming over the entire market is the Fed which promised to release a position
paper on cryptocurrency this summer.

The crypto market has been experiencing weakness after reaching highs earlier this year. All of the recent news may have turned the negative trend around.

Suggested Reading:

Bombshells from Musk, Dorsey, and Wood at Bitcoin Conference

Backed by the Full Faith and Credit of Blockchain

Can Wall Street Giants Put Bitcoin on the Menu?

Decentralized Finance, is it the Future?

 

Sources:

https://www.cityam.com/amazon-definitely-lining-up-bitcoin-payments-and-token-confirms-insider/

https://www.amazon.jobs/en/jobs/1644513/digital-currency-and-blockchain-product-lead

 

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High Profile Bitcoin Event Could Put Cryptos Back on Track

 

Concerns facing Bitcoin and other cryptocurrencies continue to mount. Yesterday the New Jersey’s Bureau of Securities issued a cease and desist order against the company BlockFi for paying interest on crypto balances. China has insured reduced transactions within its borders by recently banning financial institutions from dealing in cryptocurrencies. The country has also forced Bitcoin miners to suspend operations. Britain’s financial regulator recently said one of the world’s largest cryptocurrency exchanges, cannot conduct any unregulated activity and issued a warning to consumers about the platform. Elsewhere, although the stated reasons differ, the trend is to slow the adoption of cryptocurrencies by the public. Environmental issues became the topic of conversation in May as Tesla decided to halt purchases of their products through Bitcoin. They cited concerns over the use of fossil fuels for mining and transactions. Michael Burry who is renowned for spotting trends to short, has also publicly gone cold on Bitcoin.

The A-Team at the B-Word Conference

Elon Musk, Jack Dorsey, Cathie Wood, along with many top names in the crypto sphere, will take part today in an event that discusses embracing Bitcoin. The free event called The B-Word – How Institutions Can
Embrace Bitcoin aims to “demystify and destigmatize mainstream narratives about Bitcoin.” It will feature pre-recorded
discussions and a live discussion that includes Musk, Dorsey, and Ark.

Take-Away

This high-profile “ride to the rescue” could create a re-awareness of Bitcoin and crypto utility and create lift for the assets class that, in many cases, have lost half their value from earlier this year.

As a courtesy, we have provided a link for those who wish to learn more about what could be a market-moving event, The B-Word
Conference.

 

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TAAL Distributed Technologies

The Robinhood IPO

Is Interest Paid on Crypto an SEC Violation?

The Fed’s Discussion Paper on Crypto to be Released

 

Sources:

https://www.thebword.org/c/the-b-word

https://www.barrons.com/articles/bitcoin-price-cryptocurrencies-china-crackdown-51624274385?modtag=djemBestOfTheWeb&mod=djem_b_Feature_7212021%2074145%20AM

https://www.reuters.com/world/uk/financial-watchdog-orders-crypto-exchange-binance-stop-regulated-activities-uk-2021-06-27/

 

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When Was the Shortest Recession in Your Lifetime?

 

The U.S. officially emerged from a recession in April 2020. After clarity, confidence, and leadership seemed to calm markets following the introduction of the novel coronavirus on our shores, the contraction ended within two months.  This officially makes it the shortest recession on record.

The announcement Monday (July 19, 2021) from the National Bureau of Economic Research also declares April as the official start of the recovery

The recession ended the country’s longest recorded economic expansion, which began in June 2009 and lasted 128 months, according to the bureau’s Business Cycle Dating Committee, the accepted arbiter of recession dates.

The group typically waits until a business cycle is well underway before declaring it has started.  It took more than a year to make official our most recent recessions duration.

 

 

Suggested Reading:

Black Swans, Falling Knives, and Market Corrections (March 2020)

Bear Market Cycles, Is it Different this Time (March 2020)

 

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When Will Investors Know if Inflation is Persistent, Not Transitory?

 

Is today’s high rate of Inflation transitory or persistent? This is the question the talking heads on TV are telling us we should be asking. It’s important to investors and non-investors alike, so let’s take a look.  Some forecasters expect that the past three months of notable increases in CPI are not the start of a long-term trend, but instead, a hiccup that will be short-lived. This camp includes the Federal Reserve Bank Chair, Jerome Powell. Other commenters are reading the tea leaves with much more concern. In their view, a flood of government spending and cheap money for all will continue to pull prices up.

The Consumer Price Inflation (CPI) statistics released last week are only the third data point well above the Fed 2% target. These three consecutive reports neither confirm an inflation spiral or show a slowing of price growth. So, although we know prices have risen, there are no hard conclusions if that will continue. How can we use these and other numbers to make investment decisions, borrowing decisions, and even spending decisions in our daily lives?

 

 

The two opposing views are typical when looking at the economic outcome of most unknowns. They’ll say, “on the one hand this, on the other hand, that,” In this case, on the one hand, prices are high because of built-up demand and pandemic-related shortages that will abate, and on the other hand, prices will continue up as there is ongoing cheap money available to spend to fulfill wants and whims. And then discussions also include all the other considerations, the basis months for the inflation is the early stages of the lockdown, people out of work, the bond market hasn’t panicked, etc. Seeing into the future with so many economic variables is rarely clear. And when there is a level of certainty, markets move fast to gobble up opportunity.

What We Did Learn Last Week

As reported Thursday, on a monthly basis, prices rose by 0.9% for the biggest single-month increase since June 2008. The core data (stripping out volatile items such as food and energy) reported US inflation grew from 3.8% over the previous 12 months in May to 4.5% running 12 months in June.

This third dramatic and higher increase provides a reason to lean toward betting on persistent inflation. Even when pulling out some of the more volatile items, consumer prices still soared last month. This challenges the view of most Fed members and others that high inflation during the US recovery will be temporary; so far, for a full quarter of 2021, they have been wrong.

Inflation had been largely absent for over a decade. A so-called reflation mindset started to blossom earlier this year as economies started to recover from the pandemic and inflation ticked higher. Investors moved cash to various areas to try and capitalize on the expected trend. Reflation investments tend to include assets that benefit from faster economic growth, price pressures or higher yields. Equities tend to benefit while fixed-rate bonds suffer. Specifically, in the stock market, small caps and cyclical sectors such as banks and energy producers are where investors look to gain more exposure. This year it also includes cruise operators, airlines, rental car places, and other “reopening” trades.

The enthusiasm for the “reflation trade” is not as popular as it was in late Spring. Some data supports those making a case that the reopening trade contributed to inflation in an unsustainable way. Lumber and other building product prices have since come down quite a bit from their highs, and home improvement sales are slumping. One-third of the price increases in June were from previously owned car price increases (10.5% increase over the previous month). Surely used car price increases won’t continue after the semiconductor shortage sorts itself out.

The Federal Reserve is officially in the transitory camp. Its stance is that as pent-up demand is fulfilled, global supply shortages ease and demand scales back. Inflation, they expect, will then fall back into their target range. This stance by itself helps keep the bond market from a strong reaction to the inflation reports. The bond market is forward-looking, with inflation expectations as its primary driver.

 What to Look For

Starting every day knowing that we are not smarter than the overall market is a prudent mindset. It helps us keep our “bets” in check while we lean toward and overweight in one direction or another rather than go in deep and run the risk of being wrong. If inflation continues well above 2% annualized and the economy shows signs of shrinking, it would be taken as a problem sign for the “transitory” camp. Additionally, if the supply shortages and pent-up demand wane and prices continue to escalate, the transitory argument will fall apart completely. Conversely, if economic numbers come in strong and the inflation pace slows, the “persistent” argument begins to fall apart. This would be good news for investors. Last week the Commerce Department reported retail sales were up 0.6% for June. This was above expectations and well above the 1.7% decline in May. This strong economic number gives a little more rope to both the persistent and the transitory arguments in this forecasting “tug-of-war.”  

Suggested Reading:

CPI Confirms Inflation Running Ahead of Interest Rates

Inflations Impact on Stocks

Sports and Esports M&A in High Gear

The New Space Race

 

Sources:

https://www.census.gov/retail/index.html

 

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Inflation Confirms it is Running Well Ahead of Interest Rates

 

Inflation, as reported today (July 13), is running well ahead of interest rates available in the Treasury bond market. The Bureau of Labor Statistics shows that in June, the Consumer Price Index for All Urban Consumers rose 0.9 percent on a seasonally adjusted basis. This adds up to a 5.4 percent increase over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.9 percent in June (SA); up 4.5 percent over the year (NSA). The ten-year U.S. Treasury Note traded to yield 1.38% end-of-day yesterday.

June’s consumer-price index growth at 5.4% is the fastest pace of annual inflation in nearly 13 years. The growth is 0.9% on a month-over-month basis, the largest jump since 2008 and higher than expected.

 

 

If price increases don’t slow, the Federal Reserve may have no choice but to back off of its promise to hold rates down. An increase in interest rates could halt the stock market’s bullish sentiment, throw cold water on real estate price growth, and cause the proposed multi-trillion-dollar infrastructure plan to cost taxpayers substantially more. It is also worth recognizing that the historically easy money and low interest rates have been a driver of dealmaking in private equity and venture capital, this could slow.

The official position taken by the Fed, which has been enough to keep the bond market stable is, the inflation numbers are transitory, primarily the result of shortages that will not last in the post-Covid economy. 

 

 

The July 13 report (June’s numbers) demonstrates what could be temporary. Used car prices and transportation services made up 76% of the increase in core CPI (ex-food and energy). Buying a car and traveling, it can be argued, are sudden shocks that will not last.

July CPI will be released on August 11. Register at no cost for Channelchek’s insights into markets, industries, companies, and the economy to stay on top of the no-nonsense information we provide.

 

Suggested Reading:

Inflations Impact on Stocks

Add this to the List of Inflation Drivers

 

Sources:

https://www.bls.gov/news.release/cpi.nr0.htm

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

 

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Add This to the List of Inflation Drivers

There are more than enough arguments suggesting that for the remainder of 2021, we will experience above-trend inflation. Tight labor markets, money supply growth, over stimulus, higher fuel prices, shortages, increased consumer demand, etc., pick one, or pick them all, most concede that this year will play out with price increases. Whether an inflationary trend continues deeper into the decade or even an upward price spiral is not knowable but worth watching and even hedging against. Based on some of the actions taken by world leaders, including those in Washington, higher long-term U.S. price growth and a weakening dollar may be unavoidable. Some of the actions that may drive prices higher are related to the future of energy; let’s explore.

Energy Policy

In a White House press briefing dated April 22, 2021, related to greenhouse gases, an announcement was made that read:

“The United States has set a goal to reach 100 percent carbon
pollution-free electricity by 2035,
which can be achieved through multiple cost-effective pathways, each
resulting in meaningful emissions reductions in this decade. That means
good-paying jobs deploying carbon pollution-free electricity generating
resources, transmission, and energy storage and leveraging the carbon pollution-free
energy potential of power plants retrofitted with carbon capture and existing
nuclear, while ensuring those facilities meet robust and rigorous standards for
worker, public, environmental safety and environmental justice.”

Most of us were raised to care about the health of our planet and what we leave for the next generation; I certainly was. So, we can understand, even appreciate,  why important actions that take a long time to implement are made in advance of any projected “disaster.” Channelchek serves its readers by covering markets and economics, so reviewing one of the economic implications of reducing the demand for petroleum products serves our readership. The above announcement throws up at least two more red flags in the inflation department to consider.

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Inflation Drivers

The first red flag for American’s finances is easy to understand. The U.S. produced 91% of the oil it used in 2016 and was energy self-sufficient; America was actually able to export its excess local production by 2020. For the first time the U.S. managed to take complete control of its energy destiny. The decision has now been made to unwind what took so long to achieve and instead build solar panels, mine for minerals to create battery systems, and cover land to collect sunlight. This is paving the way for exciting investment opportunities, but in the short and medium-term, may lead to higher all-around costs. The White House announcement eludes to high-priced labor, the cost of electricity and everything that we consume that uses electricity in the manufacturing process will cost more to make. This higher cost of production will get passed to the buyers. Everything has a cost, one of the costs of this transition would be increased prices.

The second red flag is a bit more involved and begins in the 1970s. The ‘70s followed decades of the most comfortable and prosperous growth period in the countries history. However, the post-war (WWII) boom stopped abruptly when that decade began. It was a surprise and a shock to most.  Young adults who only knew growth and prosperity were suddenly asked to tighten their belts, put schools on austerity, and become two-income households for the first time.  A root cause was the country had halted backing dollars with gold (gold standard). The lack of backing caused a lack of confidence which helped drive prices up

The dollar was eventually shored up as it essentially found a new commodity to back it, this commodity was oil. The U.S. and Saudi Arabia reached a deal to price the sale of crude oil throughout the globe in U.S. dollars. Whether a U.S. company is involved in the transaction, or even Saudi Arabia, the standard currency around the world is and has been U.S. dollars. The name given to this is petrodollars. The world has been on this petrodollar system for 50 years, and it has had the effect of creating worldwide demand for the U.S. currency. It can be said with certainty that among the reasons the U.S. enjoys the high of a living standard it does is because our dollar is strong. It is strong because of faith in our economy and because petroleum can’t be bought around the globe without U.S. dollars. This produces a demand, unlike any other currency experiences.

The plan outlined by the White House above has the U.S. electricity generating ability free of carbon emissions by 2035. The plan in the U.S. and Europe for electric vehicles are just as aggressive. What is likely to happen to the value of U.S. dollars these countries successfully free themselves from requiring oil? Even if it’s only a small percentage of current output? Simply put, The U.S. dollar will become less in demand, not as important; it won’t be as strongly backed any longer. This would put downward pressure on its value. As U.S. dollars go down, they won’t buy as much – dollar-based costs for almost everything imported could rise.

Take-Away

If countries around the globe are successful in rebuilding energy systems, there will be lucrative investment opportunities that massive change brings. There will also be many hurdles as there are costs to everything. One of those costs could be a declining dollar. A strong dollar has helped Americans afford their above-average living standards; the challenge could become retaining those standards in the face of change, and minimizing inflation.

Paul Hoffman

Managing Editor, Channelchek

 

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White House Fact Sheet

Image credit: Jazz Guy (Flickr)

The Gas Tax’s History Shows How Hard it is to Fund Infrastructure Spending

 

As the Biden administration and Republicans negotiate a possible infrastructure spending package, how to pay for it has been a key sticking point.

President Joe Biden and Democrats in Congress want to raise taxes on the rich, while some Republicans have been pushing for an increase in the gas tax – which would be the first in 28 years. A bipartisan group of senators recently crafted a compromise bill that would pay for just under US$1 trillion in spending on rail, roads and bridges over five years in part by indexing the gas tax to inflation. Democrats call this regressive because it would raise taxes on working Americans.

As the director of energy studies at the University of Florida’s Public Utility Research Center, I’ve studied both taxes on energy and how the government spends money on infrastructure.

Throughout the gas tax’s controversial history, leaders have frequently called upon this revenue source when serious infrastructure investment is needed.

The First 40 Years

This resilient levy is a major source of U.S. funding for roads and transit today. It originated during the Great Depression as a “temporary” penny-per-gallon gasoline tax. At the time, a gallon cost about 18 cents, or about $2.90 in 2021 dollars.

As he signed the Revenue Act of 1932 into law, President Herbert Hoover lauded “the willingness of our people to accept this added burden in these times in order impregnably to establish the credit of the federal government.”

 

 

The original gas tax, an emergency measure intended to bolster the budget and fund national defense spending, not to meet transportation needs, was slated to expire in 1933. Instead, persistent budget deficits throughout the New Deal and World War II kept it in force throughout Franklin D. Roosevelt’s administration over the objections of the oil, automotive and travel industries. It became a permanent 1.5-cent levy in 1941.

Multiple efforts to do away with the gas tax ever since have failed.

For example, Congress again scheduled the tax’s repeal in 1951 when it increased it to 2 cents as a source of revenue related to the Korean War. Instead, lawmakers agreed to keep the tax on the books to help pay for one of President Dwight D. Eisenhower’s top priorities, the national interstate highway system.

In 1956 the levy rose once more, to 3 cents, when Americans were paying about 30 cents for a gallon of gas. At the same time, the government established the Highway Trust Fund to use the gas tax revenue to pay for building and maintaining the new interstates.

The tax rose to 4 cents per gallon in 1959 and froze at that level for more than two decades.

Running on Empty

Gas tax revenue stopped keeping up with the expenses it was supposed to cover in the early 1970s following a severe bout of inflation and OPEC’s oil embargo. U.S. gas prices soared from about 36 cents per gallon in 1972 to $1.31 in 1981.

Responding to what members of both major political parties saw as a transportation infrastructure crisis, Congress more than doubled the tax to 9 cents per gallon as part of the Surface Transportation Assistance Act of 1982. The same law split the Highway Trust Fund and its revenue stream into two parts: The first 8 cents would finance roadwork while the other penny would finance mass transit projects.

This hike may have struck drivers as a sharp increase, but public spending on transportation infrastructure would continue to fall as a percentage of all outlays.

In 1984, Congress increased spending on highways by funneling proceeds from fines and other penalties that businesses pay for safety violations, such as failing to label hazardous materials or forcing drivers to work too many hours in a row.

Congress boosted the tax twice more in the 1990s but primarily to reduce the then-ballooning federal deficit. Only half of a 5-cent increase in 1990 went to highways and transit, while a 4.3-cent lift three years later went entirely to lowering the deficit.

By 1997, the government had redirected all gas tax revenue reserved for deficit reduction to the Highway Trust Fund, where it still flows today.

Along the way, other federal fuel taxes arose, including a 24.4-cent-per-gallon diesel tax and taxes on methanol and compressed natural gas. And state fuel taxes, which in most cases began before the federal gas tax, range from as low as 8.95 cents per gallon in Alaska to as high as 57.6 cents per gallon in Pennsylvania.

 

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Making Do

Since 1993, when the federal gas tax was first parked at 18.4 cents, inflation and rising construction costs have eroded its effectiveness as a transportation-related revenue source. In addition, U.S. vehicles have grown more fuel-efficient overall – which means Americans use less fuel for every mile they drive.

As a result, highway and transit spending has significantly outpaced the revenue collected from the gas tax and other sources. Since 2008, the government has transferred over $80 billion to the fund that it had to take from other sources.

But it’s still not enough. The American Society of Civil Engineers, which gives U.S. infrastructure a C-minus, is calling on the government and private sector to increase spending on roads and bridges by at least $2.5 trillion within a decade.

While it’s true the gas tax may be regressive because lower-income people pay the same rate as those who earn higher incomes, there are still advantages to this tax.

For one thing, it follows the “user pays” principle of providing government services. Under this principle, the people using the roads are held responsible for paying for their upkeep. As the number of motorists using electric vehicles increases, however, this may become less true over time.

Further, it would also create an incentive to at least marginally decrease the use of fossil fuels, accomplishing another goal of the administration.

Finally, the government could always subsidize the tax for the poor, perhaps through annual lump-sum payments, making it less regressive.

Clearly, U.S. infrastructure is in dire need of upgrading and investment. At the end of the day, Americans will pay for it one way or another – whether in taxes or through costs of unsafe and inadequate infrastructure, including in lost lives. How the government pays for investment may matter less than that it finally does it.

 

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from
academic experts. It was originally written in French by Theodore J. Kury, Director of Energy Studies, University of Florida.

 

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No-Cost Brokers Like Robinhood May be the Big Winners with Rising Rates

 

Robinhood’s IPO is expected to happen in July. The timing would seem to be ideal. Much of the mishaps
with meme stock’s orders have been forgotten or forgiven, and business growth which far outpaced its envious rivals in 2020, widened the gap even further in 2021. The company is hitting on all cylinders and likely to close during a period when money has been readily flowing into new public deals. As if Robinhood’s timing didn’t already have the “perfect storm” ingredients to do well, yesterday’s Fed announcement on interest rate policy could cause their going public to fetch even more.

 

 

Robinhood and Interest Rates

As we’ve learned, online “low-touch” brokerage firms don’t need to charge per transaction to make money. Taken directly from the Robinhood blog, this is how they earn the bulk of their income: Rebates from market makers and trading venues – Robinhood Gold, Stock loan – Income generated from cash – Cash
Management. The last three they mention; Stock loan, income from cash balances, and cash management, are likely to rise when rates increase. The current low rate environment, although it may be ideal for attracting customers to trade, hasn’t been ideal to maximize revenue on those accounts. Should rates rise sooner rather than later, particularly if it occurs with a steeper yield curve, and nothing else changes, businesses like Robinhood, Schwab (SCHW), Interactive Brokers (IBKR), and others will experience wider margins and can collect from their business customers higher rates.

Stock Loan — Stock loan, or securities lending is the practice of using stocks (or bonds) that accounts are long as a means for other customers to short securities to make good delivery on their sale. Behind the scenes, the broker executing the transaction locates a long position and, with the right agreements in place, “borrows” the securities. The broker lending the securities earns an interest rate that will rise as rates rise. This bodes well for Robinhood and other brokers that do a large number of stock loan transactions.

Cash Balances — It’s easy to understand how brokers make money on your cash balances. Robinhood’s website explains it like this: “Robinhood Securities generates income on uninvested cash that isn’t swept to the Cash Management network of program banks, primarily by depositing this cash in interest-bearing bank accounts.” With rates near zero, the next move by the Fed could double earnings on short-term deposits.  As cost-free balances begin to earn more with no extra effort, revenue from this important source will immediately make an impact.

Cash Management — The debit card held by many Robinhood customers is part of the companies Cash Management service. This is also a source of  revenue that may benefit if fees rise as rates rise. Mastercard® International Incorporated receives an interchange fee that is passed directly to Robinhood Financial.  According to their website, Robinhood Securities and Robinhood Financial also receive fees from banks for sweeping funds to them.

 

Outcome of the June FOMC Meeting

In an outcome that suggests higher U.S. interest rates sooner than originally planned from the Fed, its “dot plot chart” showed 11 of 18 officials expect at least two rate hikes in 2023. In March, only seven expected one hike. Seven officials now see the first hike next year, up from four in March. This is a dramatic change in expectations from those that set interest rate policy.

Just as importantly, Chairman Powell announced the Fed held its first discussion about slowing down its bond purchases. In addition to targeting  0-.25% overnight rates, the Fed has been buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month. Slower bond purchases will allow rates beyond overnight maturity to move up as they’ll need to find other (non-Fed) owners.

 

Take-Away

Robinhood filed for a confidential IPO in March. The securities broker has not made the details of the offering public yet. It has raised $5.6 billion from private investors and was reportedly valued at $40 billion at its funding round in February. The potential for brokerage firms that earn a large part of their income on cash balances, securities lending, and other interest-rate-sensitive businesses are likely beneficiaries of any upward movement in rates over the coming years. As rates have been very low, a small change could have a large impact.

 In April Coinbase (COIN) went public and its value shot to $86 billion. This summer Robinhood, with the advantage of a swelling account base, money readily flowing into large and small public offerings, the ability to offer part of the IPO to customers, and a positive interest rate backdrop, could generate a very strong result.

 

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Sources:

https://blog.robinhood.com/

https://robinhood.com/us/en/support/articles/how-robinhood-makes-money/

https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm

https://www.cmcmarkets.com/en-gb/news-and-analysis/will-the-robinhood-ipo-attract-investors

https://apnews.com/article/coinbase-stock-ipo-price-c3b802074ce4349b5bccf9ba43022800

 

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Decentralized Finance, Is It The Future?

 

For the last couple of years, DeFi has been the hottest topic in both FinTech and crypto, with many investors and developers believing it to be the future of finance. But what exactly is DeFi, and what makes it so significant?

 

What is DeFi?

DeFi, or “decentralized finance,” is a term used to describe any financial tool that eliminates the need for a centralized body. This means that there are no middlemen, third parties, or intermediaries involved. While this might not sound like much, the ability to cut out centralized bodies from traditional financial instruments such as loans and bonds has never happened before in economic history. DeFi allows people to trade, lend, borrow and manage their money in a way that provides complete independence. With DeFi, no institutions or organizations handle or control your money, meaning that ownership always stays with you, creating a more unrestricted financial experience.

DeFi technology is extremely new, having existed for less than ten years. The first DeFi projects to gain recognition were MakerDAO and Bancor, both released in 2017, they offered a lending platform that functioned without any centralized bodies whatsoever.

 

No More Third Parties

This is all made possible through blockchain technology. Blockchains allow people to manage their money securely without placing trust in any particular body or institution. Instead of putting your faith in a bank, credit card processor (like VISA), or payment gateway (like PayPal or Western Union), you can rely solely on the blockchain. This is a much safer option, as the code used to create most blockchains is open-source, which means anybody can view it. If anything were malicious or unsafe in the code, it would more than likely get picked up by the programming community. 

When you use third parties, you have to place your trust in that entity’s integrity, but even the most well-known financial companies have experienced issues. There is no centralized economic body that hasn’t had to deal with some scandal in the past. But that problem is negated by Decentralized Finance.

 

 

Smart contracts play a massive role in DeFi. A smart contract is a computer-generated contract that executes upon being added to the blockchain. Smart contracts allow people to transfer value to one another under certain conditions, agreed upon by the parties involved, which are then enforced by the blockchain (rather than by a centralized body like a bank or broker).

 

Why Should You Care About DeFi?

Despite it being such a simple idea (engaging with finance without third parties), it has never entirely existed before. This is the first time in history where people can access traditional financial instruments (such as loans, bonds, and trading capabilities) without needing an intermediary, making DeFi perhaps the most revolutionary financial technology to happen in the last century.

Here are the primary benefits it offers:

 

Financial Control

When using DeFi services, you keep control of your money. Instead of handing your money over to an organization that you do not trust, you deal with the blockchain: an open, fully automated, and transparent network. When working with a centralized body, you have to place a great deal of faith in them, hoping they will take care of your money and that they have your best interests at heart. But with DeFi, you do not have to rely on faith because you have full knowledge of the inner workings of the blockchain and smart contracts you are using.

Non-Invasive

DeFi services are naturally less invasive than centralized financial tools (or “CeFi”). For instance, if you were to take out a traditional CeFi loan, you would likely have to provide the centralized body with proof of identity, bank statements and possibly even undergo a background or credit check. Not only would you hand your money to them as collateral, but you would also hand over extremely sensitive data. 

However, if you were to take out a DeFi loan, you would not have to do any of this. With DeFi, nobody needs to see sensitive documents like this because no centralized body could assess or evaluate them. Everything happens via automation, so there is no requirement to pry. This makes DeFi a much more accessible and comfortable experience. Many people (rightfully) feel uncomfortable about handing over personal information to a corporation like a bank or lending provider.

 

Fairness

Considering how DeFi allows people to exchange and handle money without an intermediary, it is significantly fairer. It means that fees are lower, as there is no third party to profit from people’s financial activity. It also gives more people access to financial instruments. Many people worldwide cannot engage with CeFi because they do not have official documentation or because institutions choose to ignore them. For instance, there are approximately 2 billion unbanked people, meaning they cannot access traditional CeFi services. These financial services are extremely useful for modern living, and the fact that so many people have been locked out from engaging in them is deeply unfair, however with DeFi, this all changes. DeFi allows more people to gain financial stability and take control of their lives. 

DeFi is a game-changing technology in both crypto and FinTech, as it allows for the creation of projects and ecosystems that run without any third parties. They let people engage with traditional financial tools without relying on institutions and intermediaries, giving people more freedom and control over their economic lives. They also offer unbanked access to loans, bonds, and trading capabilities, providing them with life-changing financial instruments that many people often take for granted. Not only does DeFi have the potential to improve people’s lives for the better, but it has the potential to change the way contemporary finance is run as a whole. For the first time, centralized financial bodies are becoming obsolete, affecting the economic landscape in unimaginable ways. 

 

This article is republished with permission from the Vertex Markets Knowledge Center. Vertex uses AI to make B2B introductions providing a business networking site free from guesswork as to where the more valuable interactions are found.

 

 

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The PCE Deflator and the Trimmed PCE Inflation Rate Tell Different Stories

 

Covering April prices, the Bureau of Economic Analysis (BEA) released another widely followed core inflation measure on Friday. Many found it extra concerning. The reason the PCE Deflator received increased attention is that it’s generally the more stable measure and known as the one the Fed prefers (over CPI). It indicated price growth well above the Fed targeted 2% pace. A third inflation measure was also released Friday. Each month the Dallas Fed adjusts the PCE numbers to report this other inflation measure. This additional report rarely receives any investor attention. But, it is worth visiting in that it allows assumptions about what is happening below the economic surface, including consumers’ reaction to prices.

Background

The Fed has said it views a 2% annual increase in inflation as consistent with its mandates of stable prices and maximum employment.  The report on April CPI earlier this month indicated a pace, (for the month) well in excess of the target. One month is not a trend, and April certainly has its share of “one-off” issues, including basing growth from April 2020, which printed negative 0.8% with the lockdowns.  On Friday, the market couldn’t take much comfort in the PCE Deflator which also could indicate the Fed may have overshot in stimulating the economy. This one April number is not as easy to explain away in that it’s a broader gauge that is less volatile, and generally runs below the CPI average.

 

PCE Price Deflator

The PCEPI is the Federal Reserve Bank’s favored inflation gauge to help them direct policy. This is according to their own guidance. The reason given is that it is a broader gauge of prices than the basket of goods found in CPI.

 

 

The graph above shows the PCEPI charted against CPI-U for the past 20 years. It’s clear that CPI (red) is much more volatile, and in any given month may change dramatically which is not always the beginning of a change in price growth. By comparison, the numbers based on PCE include a broader base of goods. It also will report net of food and energy, because these often experience large shifts for reasons unrelated to economic price pressures (weather, war, politics, etc.).

 

The FOMC carefully considered both indexes when evaluating which metric to target and concluded that PCE inflation is the better measure. – Federal Reserve Bank, St. Louis

 

On Friday (May 28), PCEPI showed an annualized rate of inflation of 7.5%, and 8.3% ex-food and energy. This is a spike of the less volatile inflation measure and offers little consolation to those concerned with the higher interest rates that inflation promotes.

 

The Trimmed Mean PCE Inflation Rate

From the BEA data, the Dallas Federal Reserve Bank is responsible for calculating a monthly set of numbers. Their analysis, The Trimmed Mean PCE Inflation Rate, is an alternative measure of core inflation using PCE.

The Dallas Fed segments off the different goods and services based on price rise and looks at how much they have risen or fallen, then it calculates the actual consumption of those products. So the Fed weights the data based on consumption. One reason for this is it shows that substitutions limit the level of higher prices actually paid by households. If, for example, the price of oranges rise by 6%, while apple prices remain the same, if half the consumers substitute apples for oranges, the experienced household inflation would be overstated if not accounting for the reduced purchases of oranges and increased purchase of zero inflation apples. 

 

 

The above Trimmed Mean PCE chart covers the same 20 year period as the top chart. We can see by this alternative measure that inflation is not impacting households in a way that should concern policymakers. In fact, the April numbers shown below indicate a six-month annualized inflation of 1.8%, compared with the PCE Deflator at 4.3%.  These are seemingly two different stories.

 

 Source: Federal Reserve Bank, Dallas

 

Which is Correct?

Giving more weight to one or the other inflation measures would have led to rather different assessments of appropriate policy. The Fed prefers PCEPI over CPI-U for the same reason the S&P 500 is preferred by investors over the Dow 30 as a gauge of stock market movement. An index limited to 30 industrial stocks is not as inclusive as the index that includes 500 of the highest capitalized public companies. When comparing the PCEPI and its derivative Trimmed PCE Inflation, they both need to be viewed knowing what they demonstrate. The actual experienced cost of living change is best reflected in the Dallas Fed number (Trimmed), while economic price pressure is best reflected in the BEA number (PCEPI).

Take-Away

Perception, and expectations of future perception, drive stock prices more than the accuracy and precision of any measure of economic health. One thing for equity investors to keep an eye on, is if the bond market begins to lose faith in tame inflation or the Fed’s ability to keep an even keel, the expectations of equity investors will lean toward lightening up positions. If the bond market doesn’t react by selling off (higher rates), then higher prices of some products should do no more than cause sector rotation within the markets to companies benefiting – not unlike buying apples when you think oranges are priced too high.

 

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Sources:

https://www.dallasfed.org/research/pce

https://www.stlouisfed.org/publications/regional-economist/july-2013/cpi-vs-pce-inflation–choosing-a-standard-measure

https://www.dallasfed.org/research/pce

https://www.dallasfed.org/research/economics/2019/0528.aspx

 

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