Yesterday the stock market had its worst day of the year with the S&P 500 declining 4.3% and the NASDAQ composite fell 5.2%. The media blamed it on inflation coming it at 8.3% vs the expectation of 8.1%. This is a silly explanation in our opinion because either one is way ahead of the Fed 2% target and Fed Chairman Powell has stated that they will remain hawkish with this level of inflation.
Inflation is causing a big problem to consumer discretionary budgets and inflation isn't going to magically disappear. It is going to decelerate but won't go from 8% to 2% overnight. We do not expect inflation to go below 4% even in 2023.
While gas prices appear to have peaked in June, consumers are still feeling the impact of inflation especially in the grocery store. In August, food price rose for the 15th straight month to a whopping 13.5%, the worst level since 1979.
A newly-published PYMNTS study looked at a national sample of 2,169 consumers between August 16th and 23rd and it found that 70% of consumers are reducing their spend on retail purchases to pay for the rising cost of essentials like groceries and gas.
Last week, RH (Restoration Hardware) CEO Gary Friedman stated bluntly on the company's conference call that anyone who doesn't think the US is in a recession is “crazy.”