With markets laser-focused on the situation in Ukraine this week, investors seemed to shrug off the latest figures on red-hot inflation. Stocks powered higher yesterday despite a PPI that showed U.S. wholesale prices in January soaring 9.7% from a year ago, more than twice analyst estimates and just short of the largest jump on record seen in May 2021. A slew of more important data is on tap for today, like retail sales, industrial production, the housing market index and FOMC minutes, which could shed further light on how price pressures are impacting the economy.
No peak in sight: "The latest inflation data continue to decimate the 'inflation is purely transitory' theory," noted Michael Cembalest, chairman of market and investment strategy at J.P. Morgan Asset Management. "After pricing in less than one Fed hike as of last September, markets and Fed watchers now expect between 6 and 7 hikes over the next year, with some arguing for a 50 basis point move and not just 25."
Besides causing a stir at the Federal Reserve, Congress is starting to prepare for some action on the fiscal side, though things are getting partisan ahead of midterm election campaigns. Democrats have introduced legislation that would suspend the federal $0.18 gallon gas tax until next year and are considering pulling some pieces out of the stalled Build Back Better agenda to address prescription drug prices and childcare costs. However, Republicans were quick to criticize the gas-tax holiday, saying Democrats now realize that they were on the wrong side of the energy issue as well as "dumping trillions of dollars in left-wing spending on a recovering economy that already had the preconditions for some inflation."
Soaring everywhere: One example of how inflation is affecting the housing market can be seen on Airbnb's (NASDAQ:ABNB) earnings call yesterday, with co-founder and CEO Brian Chesky saying the current landscape may "empower more individuals to become hosts as a source of earning additional income." Heineken (OTCQX:HEINY) also issued a warning in its quarterly results, outlining that price pressures are "off the charts." "In my 24 years in the business I've never seen anything like it, not even close," CEO Dolf van den Brink said on a call. "Across the board we are faced with crazy increases, so it's anybody's guess what the impact is going to be on volumes. There's no model that can handle this kind of inflation."