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On April 4, local time on April 3, U.S. Secretary of Health and Human Services Robert Kennedy Jr. said that about 20% of the layoffs in the Department of Government Efficiency were wrong and needed to be corrected. The U.S. Department of Health and Human Services laid off about 10,000 people on the 1st. Kennedy said that people who should not have been laid off were laid off, and the department is restoring their positions. Kennedy said that canceling the entire lead poisoning prevention and monitoring department of the Centers for Disease Control and Prevention was one of the mistakes. At present, it is unclear what other projects Kennedy may plan to restore.Bank of Japan Governor Kazuo Ueda: Will consider the impact of food costs on consumers.On April 4, local time on the 3rd, the automobile company Stellantis said that due to the impact of the US import automobile tariff policy, the company decided to lay off 900 employees in its five US factories and suspend production operations at two assembly plants in Canada and Mexico. Antonio Filosa, Chief Operating Officer of Stellantis Americas, said that the US factories that were laid off were powertrain and stamping parts factories, which produced spare parts for two assembly plants in Canada and Mexico. According to the plan, the assembly plant in Canada will stop production for two weeks, and the assembly plant in Toluca, Mexico will suspend production throughout April. Filosa said the company is "continuing to evaluate the medium- and long-term impact of tariffs on operations."Bank of Japan Governor Kazuo Ueda: Non-weather factors may push up food prices.Bank of Japan Governor Kazuo Ueda: Price changes in goods frequently purchased by households may affect consumer sentiment and the underlying inflation rate.

Sticky Inflation and the Perfect Sweet Spot for Commodities in 2023

Jimmy Khan

Feb 20, 2023 16:01

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Finding a Sweet Spot in a World of Sticky, Stubborn Inflation

There is no doubting that the present macroeconomic environment is producing a wonderful sweet spot for commodities, regardless of whether 2023 brings in a period of stagflation or even a recession.


The January Producer Price Index data revealed that the Fed's efforts to combat inflation have had a tremendous run, but that actual success is far slower than what policymakers are telling the markets to think with their new "disinflationary" narrative.


Maker's Pricing Concerns over inflation's stickiness increased in January when U.S. inflation increased more than anticipated.


Traders are aware that the Producer Price Index, which is seen to be a leading sign of where Consumer Price Inflation will be in a few months, increased 0.7% from December to last month. It exceeded the predicted growth of 0.4%.


The PPI, which analyzes prices paid to manufacturers for goods and services on a yearly basis, increased 6% over the previous year. It was down from 6.5% in December but still much higher than market expectations of 5.4%.


Since manufacturers pass on their costs to consumers, both in terms of raw material prices and the transportation of products to market, PPI rises often convert into CPI hikes with a lag.


Non-Farm Payrolls statistics from earlier this month revealed that the U.S. economy generated 517,000 jobs in January, far above estimates and outpacing the rise of 260,000 in December. Although average hourly wages increased steadily and the unemployment rate decreased to 3.4%, it was the lowest level since May 1969.


Although this is excellent news for workers, it is poor news for the Fed since it increases inflationary pressures in the economy because of the hot labor market and faster pay rise. You can't help but doubt the Fed's new disinflationary thesis when you combine it with the persistent and stickier Producer Price and Consumer Price Inflation statistics.


The Fed deserves some credit for winning the simple war against price pressures by bringing inflation from 9% to 6%. Yet the central bank's largest and toughest job to date will likely be bringing inflation from its present level to the Fed's 2% objective. This suggests that throughout 2023, "Sticky Inflation" will continue to be one of the key macro themes driving the markets.


If history is any indication, either scenario—Stagflation or a Recession—will eventually provide an extraordinarily profitable background for future commodity prices, that much is clear.