Bad Breath of Inflation Sinks Target, Walmart, Other Retailers on Surging Costs of Products, Labor, and Transportation

Not a revenue-shocker (they were up even from stimulus-miracle a year ago), but a cost-shocker. Unable to pass on all the cost increases, their margins got squeezed.

By Wolf Richter for WOLF STREET.

Target reported today that its revenues, at $25.2 billion in Q1, beat by 4% the mega-stimulus-miracle Q1 last year when consumers, awash in government stimulus cash, had gone hog-wild. This was similar to Walmart, which had reported yesterday that its total revenues too beat that stimulus-miracle quarter last year by 2.4%. That’s pretty good when you think about that buy-everything craziness that reigned a year ago in the most ridiculously overstimulated economy ever.

But both retailers reported that their costs surged – product costs, transportation costs, labor costs, and other costs. Target reported that its product costs jumped by 10.4%, and that selling and administration expenses rose by 5.6%; and that therefore operating income plunged by 43%, and that its operating margin (operating income divided by revenues) was only 5.3%, down from 9.9% a year ago, which was a shocker, and it blew out the fuse.

It wasn’t a revenue-shocker, it was a cost-shocker.

Turns out, inflation is eating up retailers’ profit margins. “Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” the earnings release said. Shares kathoomphed 25% during the day and afterhours to $161.61, and were down 38.8% from the peak last August:

Target slashed its projection of its operating margin for the full year, squeezed further by inflation and cost increases and the supply chain chaos. It recognized that it wouldn’t be able to pass on all the cost increases it’s facing, though it would be trying.

But wait… That plunge only took the share price back where it had been in May 2020 as the stimulus checks were hailing down on consumers. It just shows to what ridiculous highs these shares have been whipped and that even for viable big companies, the regression back to normal, wherever that may be, is going to be rough.

Walmart reported yesterday that its gross profit decline due to “elevated supply chain costs and product mix,” with some customers shifting to lower-end products. And it said that operating expenses increased “primarily due to increased wage costs in Walmart U.S.”

Revenues rose 2.4% over the stimulus-miracle Q1 last year, and that was pretty decent considering the craziness a year ago.

Retail is a low-margin business, and small cost increases can wipe out much of the margin. Walmart’s cost of sales rose 3.5% and operating, selling, and administrative expenses rose 4.5%. And therefore, operating income plunged 23%, and net income plunged by 25%.

Walmart’s shares dove 18% since it reported earnings yesterday and 24% since their peak on April 21.

Target and Walmart are part of the retailer category “general merchandise stores,” where retail sales in April – that would the final month in most retailers’ Q1 – were very high, but were up by less than 1% from the historic stimulus-miracle April a year ago (from my report about retailers by category). Note the three giant spikes during the months when the three stimulus checks went out:

The hot retailer categories. Retail sales were hot in April and the prior months at “eating and drinking places” (+20% year-over-year) and at “miscellaneous stores,” which include cannabis stores where business is booming (+19% year-over-year).

Ecommerce sales were also strong (+13% year-over-year). Ecommerce is a biggie. Ecommerce includes the ecommerce sales of Walmart and Target.

Amazon [AMZN] had waylaid investors with its Q1 report on April 28. Total revenues grew “only” 7%, which would have been great for Target and Walmart, but it was Amazon’s slowest growth rate since the dotcom bust. In addition to a huge loss on its stake in Rivian, it also included all kinds of warnings about soaring expenses in its retail division. The whole thing was a mess. And its stock plunged.

Today, Amazon dropped 8.5% in regular trading and afterhours, to $2,120, unwinding most of the bounce since May 11. The stock is down 43% from the peak in July 2021.

Best Buy shares [BBY] fell nearly 11% today to $75.62, and are down 47% from the peak in November 2021, also on fears of higher costs and supply chain woes.

Wayfair [W], the online furniture retailer, had reported a huge loss on May 5, and its revenues actually fell 14% from the stimulus-miracle-Q1, and its shares have gotten shookalacked, including today (-14% during regular trading and afterhours), and are down 87% from their peak in March 2021 and are where they’d been in 2017. Because raging inflation, at some point, is no one’s friend.

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  124 comments for “Bad Breath of Inflation Sinks Target, Walmart, Other Retailers on Surging Costs of Products, Labor, and Transportation

  1. SpencerG says:

    I am not sure why we should be surprised that discount stores are selling MORE during inflationary times. People are trying to make their money go further.

    • Wisdom Seeker says:

      Actually, discount stores like WalMart are not selling more goods. They’re selling fewer goods at higher prices.

      Deep-discount stores Dollar Tree and Dollar General both report next Thursday, it’ll be interesting to hear what they have to say.

      But it’ll be most interesting to see how Goodwill is doing, and get updates from the food banks…

      • SpencerG says:

        I was in a pawn shop yesterday and the guy said he only has people pawning stuff… not buying it.

  2. SocalJimObjects says:

    200 bps increase now.

  3. Joe in LA says:

    This American boom-bust thing is really getting old. This is the third crash in 14 years. Nobody under 40 has ever seen Mr. Market do anything but borrow money, crap his pants, and ask for government bailouts.

    There’s just got to be a better way. Markets are supposed to work for people and somehow America has constructed a system where the people are working for the market, which is regarded as some sort of capricious slave god beyond human control. This is just an insane way to live.

    • polistra says:

      Best comment of the month, maybe the decade.

    • phleep says:

      Common folks weren’t complaining when all the cheap stuff flowed in and the jobs (and supply chains) flowed out. At least not complaining enough to elect someone like Ross Perot, who made it a centerpiece of his presidential campaign (along with motivating and engaging employees). They elected the globalist shills (Bill +Hill) instead. Earlier, the New Deal and little guy-friendly orientation eventually gave us a lazy, stoned, self-involved, ungovernable work force (in the 70s). History rhymes again.

      Perot was too short and un-Hollywood. Telegenic movie star looks and matching glitzy presentation skills were now required (starting with JFK, again from the party ostensibly of the “little guy.” Not that the other team was offering anything different). A republic that cannot self-govern intelligently will decay. We’ve stumbled through that awhile.

      We have serious collective action problems. (We are not alone in that.) They are far more complex and deep-rooted than Jay Powell’s limited handle on it. But people love a (bumper-sticker) simplistic “cause.” Especially a self-justifying one.

      • Frederick says:

        I voted for him regardless of his looks Call me crazy

        • Cookdoggie says:

          Perot was the last presidential candidate I voted for. The disillusionment started way back.

      • Prince Gbanga says:

        Just wait until Gavin Newsom runs.

        — your friendly neighborhood Nigerian prince

        • NBay says:

          BTW #2, “ace”
          An ACL shortening surgery is a MINIMUM 6 months in a leg cast. Tendons heal very slow and have to take a lot of load. No guarantees it will hold, either. You limp less w/o the cast…take the brace and muscle therapy, IMHO.

      • james wordsworth says:

        The problem runs deeper than that.

        The American system of individualism (every man for himself) produces some great stuff as risk is rewarded extraordinarily and failure is not heavily penalized (relative to other nations).

        But … there is a downside. The glue that holds society together is just not there. The disparities between rich and poor rival 3rd world countries in many ways. Eventually that all comes back to bite the “system”.

        An education system that is very sub par, a health care system that is ridiculously over priced, a general population that lives paycheck to paycheck.

        When you play Monopoly and one person has all the properties and the other players are down to collecting $200 for passing go each time, don’t be surprised if the other players don’t want to play any more.

        Two anecdotes on common irrationality:
        – the guy making minimum wage thinking tax cuts for the rich are great because I am going to be rich one day, and when I am I don’t want high taxes taking my money.
        – after explaining to a guy how single payer health care would cost about 1/2 of the current US system (see every other country’s experience), he just looked at me and said … Yeah, I agree, BUT (pointing to another person in the room) I don’t want to pay for his health care.

        There are real long term costs to having a lousy education system, an over priced health care system (poor use of resources), and vast income disparities. A lot of this started with Reagan … and it has just continued to get worse.

        The system needs to change (wealth and corporate concentration need to be defanged), BUT the 1%, with the money and the power will fight to the end to stop this. Eventually though the losing monopoly players will just flip the board over – and it won’t be pretty.

        • unamused says:

          “When you play Monopoly and one person has all the properties and the other players are down to collecting $200 for passing go each time, don’t be surprised if the other players don’t want to play any more.”

          Monopoly was invented by a socialist to demonstrate the evils of capitalism.

          Capitalists love it.

          In the updated version the first player to own all four railroads goes bankrupt.

        • ace says:

          lousy education as compared to…? that contradicts what most of the world believes about US Ed, probably public ed and absolutely without question higher ed. how many Americans are flocking to literally anywhere else to source better ed institutions? our perception is not the rest of the worlds and while improvements can always be made, we’re at the top of the food chain.

          try getting an ACL surgery in Norway under their single payer system. Might take you a year or more as that surgery is not considered essential or necessary. have fun limping

        • Augustus Frost says:

          What you are describing are symptoms, not the root cause. The actual root cause is extended social and economic decay, from top to bottom.

          There is no longer a common culture in the US. It’s in transit to full Balkanization. The US is a political entity (not as nation) which won’t even secure its borders.

          No, I don’t want to pay for everyone else’s health care either. I have more important things to do with my time and money other than agreeing to the bogus kinship people like you advocate, like supporting my mother and sister who can’t do it themselves.

          Since there are too many irreconcileable differences, it’s time for the great divorce. The first step in any solution is to split the US into multiple parts (dozens or even hundreds). There is no reason for a “one size fits all” government, especially one where no one except the taxpayer has any accountability.

        • Mark_2 says:

          “The American system of individualism (every man for himself) produces some great stuff as risk is rewarded extraordinarily…
          But … there is a downside. The glue that holds society together is just not there.”

          Yes.
          It’s the classic magician’s bargain, social cohesiveness for wealth/power that ends up harming everyone and finally “flipping the board”.
          There’s still time to error-correct…

        • NBay says:

          That’s called TRIAGE “ace”. It’s how the MILITARY does it. Trust me, I know.

          You want something BETTER than those who DIE and get maimed for this country get?

          A private room, maybe? I was in a ward with 20-30.

        • NBay says:

          BTW, I played County A and B League VB with a torn ACL…wore a brace with metal hinge. Lots of players did…..finally built up knee muscles enough (at a sports medicine place run by ex pro NFL trainer) where I threw it away.
          You, AF and phleep are whiners….Fred and Prince are just trolls.

      • drifterprof says:

        “Earlier, the New Deal and little guy-friendly orientation eventually gave us a lazy, stoned, self-involved, ungovernable work force (in the 70s)”

        That’s just triggered trash-talk screed. In general, the work force has been very “governable.” You know the United States history of robber barons, with their private “Pinkerton” type armies waging war on early unions, murdering people who just wanted a livable wage.

        In fact, the “work force has been quite “governable.” One example would be the Boeing employees who went along with Mr. Market oriented upper management hiding design flaws from in their 737 Max that resulted in murder of passengers (see “Downfall: The Case Against Boeing” on Netflix). Boeing not only hid the flaws from pilots, they were convicted of hiding the flaws from the Federal Aviation Administration.

        Another example is the partial meltdown in Three-Mile Island nuclear plant (“Meltdown: Three Mile Island” miniseries). No lazy stoners there. Just employees who kept their heads down when upper management was putting the whole region in danger by denying the severity of the crisis while it was happening, and cutting costs while ramming through and unsafe hasty cleanup so it wouldn’t look so bad for the industry.

        There are thriving stoners as well as lazy stoners, just like thriving alcoholics vs lazy alcoholics. I knew a total stoner making 6 figures (industrial pipe sales) in the early 1980s, and there were a lot like him.

        Although I have had a pretty strong work ethic most of my life, I’d much prefer having a beer with a chilled stoner over having to tolerate the financial hedge fund type predators, or anyone who’s main goal in life is to acquire wealth out of thin air.

        • TK says:

          Here in PA we might just get a hedge fund founder for US senate. Depends on whether he beats the Dr. OZ persona when the votes are counted. Just the primary I know. But how ironic. 2 rich men one hollywood one wall street claiming to know what is best for me. One wants my investable money they other wants to sell me lots of vitamins. The only thing they have, that a rational person doesn’t, is a lot of money to run negative ads. Hate to say it but the majority of people deserve what they get. People shape opinions base on soundbites. I think campaign finance reform is long overdue. Otherwise the masters of the universe will keep us (the slaves) in our place and tell us we are happy. Every campaign donation should be 100% transparent. What do they have to hide I wonder ?

        • unamused says:

          “People shape opinions base on soundbites.”

          Remarkably enough, it’s been shown that people would rather electrocute themselves than think. Which partly explains the current widespread preference for demented politics.

          People are not, by nature, good. These days people are encouraged to be bad as a method of political exploitation. And it works, too.

        • unamused says:

          “That’s just triggered trash-talk screed.”

          There are plenty of tr0lls here promoting the overthrow of democracy in America. It’s not that hard to tell who they are.

      • unamused says:

        “Earlier, the New Deal and little guy-friendly orientation eventually gave us a lazy, stoned, self-involved, ungovernable work force (in the 70s).”

        All corporatists with terminal pleonexia say that. It translates to an overwhelming desire for an enslaved population. Something you should be careful about promoting.

        FDR saved capitalism from itself. If he hadn’t pushed through major concessions in favor of wage slaves – organizing rights, Social Security – we would not now be having these pleasant conversations. Certainly not in English.

      • Kurtismayfield says:

        The fact that you believe that elections for president has any effect on the economic system tells me all I need to know.

        And there was a very large upcry against NAFTA at the time. It was so large that the powers that be ran the straw known as Perot to split the vote.

        • michael says:

          …..so you are suggesting that Biden had no impact on fuel prices driving inflation in everything else?

      • Bobber says:

        Many people vote for the person they’d like to have a beer with, or worse yet, a cup of tea.

    • Flea says:

      Quit feeding the pig cancel 401 k,they steal your money . That’s why there’s so many billionaires

    • John in SC says:

      I’ve been thinking the same thing! And it’s just getting worse.

    • Old school says:

      The Fed was trying to pump juice into the economy using easy money, in a way to make it something it was not.

      Real long term GDP growth is about 1.75% real. It’s going to be very easy for the earnings to fall 50% as inflation takes hold as profit margins were at record high.

      Also going to be easy for the price multiple to fall by 50% as it too is at record high. That could easily give you 75% drop in S&P500 from top or 1200.

    • Anthony A. says:

      Great comment Joe.

      It’s exact;y how things are going in the U.S. these days. As an old retired guy, I am hesitant to invest in anything except T Bills and CD’s. I can’t make it back if I lose a bunch.

    • Dm says:

      #EndTheFed. The only reason for these boom bust cycles.

      • unamused says:

        Garfield deplored boom/bust cycles in the 19th century. Creation of The Fed in 1914 merely institutionalized the authority of the financial industrial complex to supervise them and properly profit from them, which FDRs reforms neutralized until the 1960s:

        “Whoever controls the volume of money in our country is absolute master of all industry and commerce … and when you realize that the entire system is very easily controlled, one way or another by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

        – James A. Garfield

        Most US presidents have had something nasty to say about the Financial Industrial Complex. After Eisenhower they all shut up about it.

    • Jeremy Wolff says:

      There have been zero crashes in the last 14 years. The market has traditionally gone up 8% per year. On May 19, 2008, Dow Jones closed at 13,028.16. It is at 31,334.00 today. That is a 241% increase. Or 17% increase per year. A crash would be when the market falls below the long-term increase rate. If companies can increase their productivity by 8% per year, which they can, GDP will continue to grow, and Americans will continue to profit from their investments consistently.

      • Joe in LA says:

        “Americans will continue to profit from their investments consistently.”

        These will be Jeremy’s last words as a marauding hoard of poor and displaced people come charging through his living room.

        Good luck that.

    • Sean Shasta says:

      Joe in LA:

      Agree with what you are saying. Unfortunately yes, the system has been set up where it works for “some people”. And this is no because the system has been set up by the very same people.

      The Golden Rule: One Who Has the Gold Makes the Rules.

      • Sean Shasta says:

        Sorry….typo…corrected below:

        Joe in LA:

        Agree with what you are saying. Unfortunately yes, the system has been set up where it works for “some people”. And this is because the system has been set up by the very same people.

        The Golden Rule: One Who Has the Gold Makes the Rules.

    • NBay says:

      Yeah, that is REALLY REALLY damned good, Joe. I took a screen shot of it.

      Hate to add my usual “CALVINISM at work” analysis to it, as it is stand alone stuff, but I will.

  4. Xizor says:

    Isn’t it a bit ironic that…Bernanke was interviewed the other day and said Powell was around for the previous taper tantrums so he tried to do move slowly and give lots of advance heads up…TO AVOID SPOOKING THE MARKETS. To avoid another market tantrum.

    Which is not their job anyway…But isn’t it ironic that, in the end, you can also move too slow and speak too much? And now he’s got the market tantrum to deal with anyway…

    • Wolf Richter says:

      My question is: Why is ANYONE still listening to Bernanke? He who engineered the Fed’s most disastrous monetary policy ever (QE).

      • Iona says:

        They’ve had pieces of an interview on Npr’s market wrap the last few days. They treat him like he’s holy. And he is, in that he brought a lot of misery and that’s their goal as anti human. It’s why they love yellen too, and never saw a RE bubble they didn’t love and pump like crazy, leading their listeners to the slaughter

      • Xizor says:

        “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

        https://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/

        His whole career has been about avoiding another Great Depression, yet the economy has arguably been in one since 2008 and we still haven’t dealt with all of the global debt.

        He probably pats himself on the back for “avoiding” the depression in 2008 and that his helicopter money policies that Powell ran in 2020 also “avoided” the depression.

        But it’s like being a one trick pony. Avoiding a great depression doesn’t mean you did a good job. Because if you zoom out far enough, the policies were overall disastrous. The consistent decline in GDP numbers going back to the 80s demonstrates this. The inequality and polarization of society demonstrates this as well, in addition to there being the most youngsters living with their parents since the Great Depression era.

        And most importantly…since we must have either a deleveraging event or hyperinflation to address the enormous global debt, the Great Depression will arrive anyway. It will just be worse for not having been dealt with earlier on…

      • Sean Shasta says:

        Helicopter Ben. He had free rein to set policy but was completely oblivious or callous about the consequences!

        And he is supposed to be one of our top economists teaching at Princeton. SMH.

      • Marco says:

        Amen to that Wolf
        Bernanke has got off way too lightly for this debt mess

      • Russ says:

        Since Reagan the Fed seems to have been a slave to Friedman economic theory that essentially advocates that the money supply is the source of inflation, and like Friedman, that is not the whole story, but the FED does not have the tools to manage the other factors, so they use the tool(s) they have. It is the old saw, “If you have a hammer, all problems look like a nail.” The FED has no control over Fiscal policy, they have no control over inflation mind-set, they may have stimulated the surly chain issues, but they have no control over them now, and they certainly have no control over China economic issues. They should not be given the power they seem to have.

        • NBay says:

          True. Fiscal policy as in the power to TAX and SPEND……nothing in the Constitution says we have to let the damned LOBBYISTS run the whole show…(or be on the Congressional baseball teams)..

          I like the early 1800’s term for them better…”BORERS”, as in Swiss-cheesing our attempt at by the people, of the people, for the people.

          Still interested to know if anyone has seen a Tom Paine statue anywhere, he was the guiding light for the Revolution, ya know?….not Washington.

          Still holds record for most read per capita USA of ANYTHING.

  5. Thunder says:

    “Because raging inflation, at some point, is no one’s friend”
    Rule 72 says it will eat everything from the poor first and then also the “rich”
    Meanwhile J Powell is whistling past the graveyard of his own making

  6. ru82 says:

    FYI. larry Summers said he is concerned about inflation. The labor and PPI are still high and these are inputs to higher cpi.

    Talking to a farmer friend and he stated inputs to plant crops will double by the end of the year. So higher food prices are coming down the road. Egg prices jumped 10% as a big egg producer had to cull a lot of chickens because if the bird flu. 36 million chickens and turkeys have been culled this year.

    • Brant Lee says:

      That’s a good example of gouging inflation. I understand the farmer had to raise prices by 10%. But a dozen eggs were about 1.39 six months ago where I shop. On the First of April, they zoomed to 2.80, now back down to $2.

      Ten percent? Today the retailers say “And while we have them bent over, let’s throw on another 50% because we can”.

      • Charlie says:

        Brant – You’ve got to be kidding! Farmers don’t raise (or lower) prices, world supply demand ultimately does this job. Along the way, hedge funds jump in on either side of the market, weather which the farmer does not control has influence on market, war (like Ukraine-Russia) influences the market, supply chain issues influence the market all the while the farmer is a price taker. I’ve been directly involve in agriculture for 50 years and continue to hear stupid comments like this.

    • intosh says:

      I read that crabs from Canada are stuck in delivery trucks because americans are no longer buying — too expensive, no money.

      The post-COVID spending honeymoon is coming to an end.

    • Calvin Tompkins says:

      too bad that 36 million did not include the ones in DC

  7. Mike R says:

    Based on the Vix, the market could have put in a bottom.

    Too many are too negative on the markets.

  8. phleep says:

    Frictions in supply chains, wages, and producer prices are combining into a trifecta, coming to our doorsteps.

    Producer prices are about to pass through, and shower upon us. Button down, batten down the hatches. I am buying needful things now, with an eye on the later year. Cases of canned foods, etc.: consumer staples. Maybe time to buy that fun thing that will sustain one psychologically through a time of privation. I already own all that kind of stuff.

    Target and its brethren are already getting stretched on this rack, trying walk a fine line of not having big demand destruction. They have lots of inventory in the (clogged) pipe that probably won’t sell.

    • phleep says:

      Target in ’08 switched its merchandise completely to more staple stuff: groceries, etc. Their product choices narrowed. I expect another similar shakeup.

      I walked into a midsize national retail drug chain store yesterday. Thought I would pick up some dry erase markers (for teaching). Absolute sticker shock. No sane person is buying at such prices/markups. Lots more liquor is for sale there. It’s turning into a big overpriced impulse-buying convenience-liquor store, formerly the ghetto model. Recalling the collapsing USSR’s issues with alcohol (coinciding with declines from a low living standard), that’s not an encouraging sign.

  9. R2D2 says:

    Worth noting that inflation today is low and well under control in many other major countries outside the Anglosphere.

    Japan has 1% inflation. Saudi Arabia, a petro giant, is at 1%. France at 4%.

    US and UK inflation is raging because the Fed and BoE overprinted cash and underhiked rates.

    Slow the printing, hike the rates, and inflation will be falling and back under control by 2023.

    • SocalJimObjects says:

      Japan inflation rate of 1% will not last. Their currency lost 10% of its value just last month. Japan imports all their energy, and we know energy is an input to EVERYTHING including fertilizers. But then again, Japanese people are also not Americans. When prices increase, they just buy less. And last but not least, the Japanese printed a TON of money over the last twenty years and could barely get inflation to budge. That’s the Japanese mindset for you.

      Saudi Arabia as a major energy producer does NOT import energy, so yeah it’s easy to keep inflation under control when you are a major energy producer. France similarly has nuclear energy to fall back on.

      • SocalJimObjects says:

        Look this up: Japan recorded a trade deficit in April as its imports ballooned 28% due to soaring energy costs and the yen’s weakness against the dollar.

      • Flea says:

        Can’t grow food in sand

        • SocalJimObjects says:

          LOL. Straight from Wikipedia: Although Saudi Arabia is widely thought of as a desert, it has regions where the climate has favoured agriculture. Agriculture in Saudi Arabia is focused on the export of dates, dairy products, eggs, fish, poultry, fruits, vegetables, and flowers to markets around the world as it has achieved self-sufficiency in the production of such products.

          What next? There’s no trees in Africa?

    • Wolf Richter says:

      R2D2,

      For Japan, there are some peculiar reasons inflation is still low. Among them:

      1. The Japanese government runs and prices some huge services, such as healthcare, and it SETS the prices for these services, and consumers pay nearly nothing for those services, which are funded by taxpayers. Healthcare, from healthcare services to insurance, is huge in the US, and prices are surging, and it’s a big contributor to services inflation in the US. That’s not the case in Japan.

      2. The government is now subsidizing (by sending them cash payments) wholesalers of fuels and other commodities so that they keep their RETAIL prices down, to keep consumer price inflation down. There is huge pricing pressure in Japan in the wholesale price index, and the government is attacking it with subsidies at that level to make retail inflation look small. The government announces this publicly as part of its supplementary budgets. No secrets there.

      So don’t be fooled.

    • KPL says:

      Slow the printing – Done
      hike the rates – Doing, and
      Also QT has not started and only one 50bps done – but look at what markets are doing.
      Also housing might has joined the party just now
      As Powell says not all factors under his control – oil, supply chain, food

      inflation will be falling and back under control by 2023 – may happen

      but what is it going to take, what is the cost going to be?

      in 2021 when Powell had a chance he was worried about what markets may do. Now he has more than the markets on his plate

  10. Mendocino Coast says:

    So ? How come the Fed gets off Free ? I understand Laws have been made that elected Politicians can no longer invest in the stock market ( hot Tip anyone ? ) But the Fed can do whatever they want and look at the Money they made .
    Biden supports Inflation by supporting the Fed
    He wants to reinstate the cause of inflation the current Fed.
    Its clear whats going on but seems all Legal nothing on the news about anyone fired did I miss something ?
    Or just the normal Gas and food prices , the stable Home prices ,The normal saving rates on and on.
    Is the American Dream over ? is a dictator coming next ?

    • Wolf Richter says:

      “I understand Laws have been made that elected Politicians can no longer invest in the stock market”

      Not in the US, for sure for sure. They can and do invest in the stock market, and buy options, and they dump stuff when in confidential Congressional hearings they see that the SHTF. Even insider trading is legal for members of Congress. But they do have some disclosure requirements.

      • ace says:

        Loeffler is such a piece of shi* (had to write that out, feels good). Lost a lot of institutional respect after she skated away singing. only entity that had any fortitude was her WNBA team.

      • historicus says:

        “Even insider trading is legal for members of Congress. ”
        An abomination.
        The promise of our government contains this, as note by Madison in Federalist 57

        “that they (Representatives) can make no law which will not have its full operation on themselves and their friends, as well as on the great mass of the society. This has always been deemed one of the strongest bonds by which human policy can connect the rulers and the people together. ”

        That promise has been broken.

      • TinyTim says:

        Kind of reminds me of the word “Justice” which really means “Just Us”. Gotta love politicians.

        • historicus says:

          as Oliver Wendell Holmes noted..
          This is a court of Law, not a court of Justice.

  11. Michael Engel says:

    1) In the last eighteen trading days investors experienced three crazy days above 3% each.
    2) That forced investors to sell stock in fear and margin calls.
    3) The accumulated shocks did the job. The big red days were clustered together to shakeout investors. They came on the way down and up. Tranquility will follow volatility.
    4) Wall street buy wholesale, sell retail, that’s what happened.
    5) There is nothing impressive on the weekly Dow on DM #6. The countdown might cont.
    6) Non of the weekly Dow candle were high quality candles. The Dow retraces 30% from Mar 2020 low, down 16% from the top.
    7) NDX retraced 50% from Mar low, 30% down from the top.
    8) The Dow, SPX and NDX breached the weekly cloud in it’s sharp edge. The front end flipped from green to red.
    9) NDX, May 2 a shooting star & 9 a hammer together on high weekly volume are a stopping action.
    10) The Dow, May 18 candle, x3 times the size on slightly higher volume, is anomaly. This morning in the future market May 12 low was breached, reached support from Feb 24 low to May 12 low

    • andy says:

      Looks like today may be a retest of lows from few days ago. It that holds, then it’s face ripping bear rally again.
      Tesla is in a class of its own as more and more people realize Elon is a con man.

  12. Michael Engel says:

    Options
    1) The Dow will move up until Nov.
    2) The Dow will move up for 2 -3 years, ending 15 – 16 years of uptrend, since Mar 2009 low, in a crazy vertical rise.
    3) After closing few gaps, the Dow will plunge to 29K – 30K in wave III, enter the
    channel in a thud, before plunging again to 2020 anti bubble, to 25K – 27K
    area, to 0.886 of Mar 2020 low, in wave V. That’s only Mar 2020 correction.
    4) The bigger trend ==> bigger change.
    5) We don’t know what will happen next.

  13. HS86 says:

    Instead of saying “End the Fed”, why don’t we end some of the myth that people (including those at the Fed) now believe about the Fed in 2022?

    1. Fed can effect price stability.

    TRUTH: The laws of supply vs demand applied on CURRENCY. When there’ sudden increase in demand of currency vs supply, Fed can add more (back stop bank runs from the 1800s). When there’s too much currency relative to demand (monetary debasement aka inflation) Fed can remove some currency in circulation. Interest rate, balance sheet, repo are just mechanisms of doing the same thing.

    I consider myself young but fairly old schooled. I’d like to stop writing the post right here, but let’s keep exploring…

    2. Fed can effect max employment

    MISUNDERSTOOD: The original Philips curve is just an application of the laws of supply and demand on LABOR. It’s as simple as when labor of a certain type (X = Unemployment) is scarce, (Y) wages for that type of labor increases due to demand. And when labor is plentiful (X is high), wages are cheap (Y is low). When economists aggregate all types of labor on X, large errors can be introduced. When economists replace Wage Inflation on the Y axis with monetary debasement aka The Inflation, the model completely falls apart. But that’s what economists do.

    3. Fed can effect economic expansion

    MISSION CREEP: I think I first hear this in 2018 but perhaps it can be tracked back much earlier. I recall being surprised at a third Fed mandate when JP pledge to “act as appropriate to sustain the expansion.” But did he say Fed forecast the economy to expand so Fed can create more supply of currency, or did he say Fed will create more supply of currency so the economy will continue to expand? Those are clearly two different things perfectly mixed to get people to argue with each other for years to come.

    4. Fed can effect soft landing or prevent a recession.

    PSYCHOLOGICAL: Now that we’re in bubble territory I think the Fed is trying hard not to be (seen as) the pin that popped the bubble. First Fed amid they have no control over supply side (of goods and services), but the Fed can’t very well say they forecast the economy to contract so they need to reduce the money supply to match, and they can’t say they have no tools to prevent a recession after taking credit for the economy expansion, so jawboning is all we are going to get now.

    5. Fed can help the poor

    MYTH: OK maybe no one who’s reading this believe that. Wolf’s article remind me of this. After more than a decade of increasing the money supply, driving up stocks and asset prices and rents and services and creating brand new casino asset classes to increase The Inflation, the elusive Wage Inflation finally tick up, that is, for a few months until reduced margins force companies to start laying off workers. The Inflation some believe suppose to help the poor is always too little, too late, because of that MISUNDERSTOOD mandate #2.

    A good idea is a good idea until more and more good ideas are added to it. Like the Internet. But ask the Internet to collect some cookies, do some personal advertising, include a little bit of engagement based ranking, deal in some tiered network access to make your 4K Netflix stream faster, create and counter fake news, and can you say is the internet really better in 2022 than in 2002?

    • TK says:

      Good points. The fed is not in charge of our lives. I think they react to various forces one being liquidity. Late 2019, before the pandemic, the Fed started QE with repos because some of their banks needed it. We don’t know why. But if the investment banks have 600T value tied to derivatives, any shift in equities, maturities or anything, can upend that list. So we are the unfortunate victims of keeping wall street solvent. I think the fed should just let them fail. That way those firms could eat each other instead of erroding my savings with all the side effects.

    • historicus says:

      HS86

      “I recall being surprised at a third Fed mandate when JP pledge to “act as appropriate to sustain the expansion.”

      That’s not the third mandate. There has ALWAYS been an official third mandate, and that’s not it. The “dual mandate” game has carved out the actual third mandate making the uninformed think there are only two. Why? Because honoring the actual third mandate would have prevented the Fed from what they did….pound down long rates to all time lows.
      Here is the mission statement of the Fed from the 1978 Federal Reserve Act..
      “”It is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States””

  14. Ian says:

    That 10% rise in their costs is coming our way soon and by that time their costs will have gone up another 10%.

  15. Ben Sargent says:

    Love the comment about better internet in 2022 than in 2002. But I do spend a few hours a week on the internet via Mobil devices that I did not use in 2002. The internet capabilities had to advance in order to provide the capacity needed for these devices.

    • unamused says:

      Back in the day the internet was a solution in search of problems. So it created more than it actually needed. It is proving to be an extremely efficient means of mass surveillance and control:

      To this day most people don’t realize that what they call ‘the internet’ is technically the World Wide Web (the www thing in addresses gives it away) and don’t know the difference. The WWW relies on the hypertext transfer protocol (http), but the internet proper is not limited to http and can use other protocols.

  16. Ben Sargent says:

    Interesting note on how the down draft of stock evaluations is tracking the pandemic pop and now drop of stock evaluations.

    Combination of fed policies, government spending, and corporate borrowing and stock buybacks.
    I’m sure there is a long list of reasons.

    The market bounce last week was short lived.

    Energy prices are all over the place and natural gas has risen to extremes. I assume this rise to the extreme is the belief that someone other than USA consumers and exiting LNG will use more NG. I think this could be a dramatic drop similar to some of the drops highlighted by Wolf.

  17. THEWILLMAN says:

    A financial crisis is a bunch of zero value add people losing their shirts and 2008 was bad enough.

    Now we’re talking about the companies that actually make and sell real things that people need admitting how fragile they are.

    And since we already threw the war chest at Covid, not much will be there to save us this time. We’re one major event away from disaster.

  18. Brant Lee says:

    Did the quarterly reports mention exponential higher shipping container costs? Could the retailers just not pass all that extra expense on to their customers? Darn.

    First, the jobs are gone, now we pay a heck of a lot to ship it here. Another slap in the face.

    Hint. If anyone can make good products in the U.S., I would be glad to go to your website, buy direct from you, and bypass &*@#!* Walmart, Amazon and China.

    • Island Teal says:

      Absolutely agree that a lot of people would eagerly buy a real true “made in the USA” product if given that chance. But the real issue would be at what price point. America wants and likes “cheap Chinese crap”.
      🤑🤡💸

      • RemoteWorks says:

        > Absolutely agree that a lot of people would eagerly buy a real true “made in the USA” product if given that chance. But the real issue would be at what price point. America wants and likes “cheap Chinese crap”.

        I’m already in the camp of: “if you can avoid buying it, don’t do it, it will save water”.

        That’s the ultimate currency: freshwater. And half of the country (yes, the west) is running out. Same thing goes in massive areas across every single continent. Consume what you don’t need and you will be wasting freshwater that the next generations will need. So don’t do it.

    • Flea says:

      Speed Queen

      • Anthony A. says:

        Bradford & White water heaters. Best of class, made in Michigan.

        • El Katz says:

          Stihl garden products (chain saws, etc.). American Giant clothing (cotton grown, loomed in U.S. and sewn here as well).

  19. Peanut Gallery says:

    Trying to figure out which of the two is a buy when WMT trades at double the PE of TGT?

    • Yancey Ward says:

      Neither is a buy.

    • Anthony A. says:

      More pain to come.

      No turn around for a long time when we go into the recession which is brewing.

      • Swamp Creature says:

        The everything bubble is turning into the everything crash. Every investment is going south. There is nowhere to run and nowhere to hide.

        • Wisdom Seeker says:

          There is always somewhere to hide. Sometimes it’s well-hidden though, and it can change unexpectedly too. So far this year it’s been energy/commodities, but if the Fed has is way it’ll just be cold hard cash soon.

  20. Nemo 300 BLK says:

    WSJ reported today that subprime lending of all types, auto, and credit card delinquencies was on the rise.

    Imagine what they will be like six months from now.

    • Wolf Richter says:

      On the rise, but off low rates and still small. Look at the chart in the article — don’t just drag headlines into here. You can barely see the uptick from low levels.

  21. Yancey Ward says:

    “Turns out, inflation is eating up retailers’ profit margins”

    Inflation eats everyone’s profit margins, retailers, other businesses- and retirees and ordinary working Joes, too. Discretionary spending will collapse if the inflation doesn’t end soon- people will start to conserve all funds not spent on gas, food, and shelter.

  22. Duane says:

    Talk about inflation, the last Fed calculation of net worth (for Q4 of 2021) was $150T, an increase of $105T since Q1 of 2000. How on earth does it make any sense? I think the average gain per household over that time would equal around $750,000. But that obviously hasn’t happened. Our economy is truly FUBAR.

  23. Ray says:

    Everything going to plan then.

  24. Swamp Creature says:

    Jim Cramer has just soured on J Powell on CNBC this morning. When you lose Jim Cramer its like losing Walter Cronkite after the Tet offensive in NAM. You’re finished.

    • Sean Shasta says:

      SC:

      Just wait a day. Cramer will be singing Powell kudos. He is just a loud-mouthed stock financial entertainer.

    • Swamp Creature says:

      Yep, just a week ago Jim Cramer said this was the best economy ever, and to buy on the dip. Now he’s even pushing for 75 basis points increase in the Fed Funds rate to bring inflation down. Trouble is he’s too little and too late.

    • Wolf Richter says:

      Powell is going to make lots of enemies. If he does his job and gets inflation back under control, he will be LOATHED by anyone and everyone in the media and on Wall Street because their gravy train derailed, and instead of looking like geniuses riding up the Fed’s gravy train, they now look like idiots, and their fees and bonuses will wither.

      • TinyTim says:

        But will it work for Powell this time around? Because this inflation looks like it has been amped up by the Covid supply chain disruptions and shortages instead of Fed policies. If anything it could quite possibly have the opposite effect.

      • SocalJimObjects says:

        So basically he won’t do his job in the end? I mean what’s his incentive? His stock investments won’t do well (assuming he hasn’t sold them), the muppets will not thank him, he will be hated by his peers.

        At this point, if I were Powell I would toss the hot potato to someone else. “I would like to spend more time with family” is a time honored excuse after all.

        • Wolf Richter says:

          Powell doesn’t want to go down in history as the Fed chair that let inflation get away from him. There are now legacy issues involved. Fed chairs are famous or infamous long after they pass on when they deal with inflation, such as Volcker, or refuse to deal with it, such as Arthur Burns.

        • SocalJimObjects says:

          Speaking about Fed chairs who are still alive, remember the good old days when Alan Greenspan was one of America’s National Treasure? Since then, his reputation has taken a huge hit. I don’t think his social life has been affected in any way though.

          If Powell cares about inflation, he wouldn’t have printed 4.x trillion dollars in the first place. Didn’t you say this is the most reckless Fed ever? Also raising 50 bps at a time will barely have an effect on inflation. Again if he really cares about inflation, he’ll do 200 bps now followed by 100 bps every meeting after. So what if that crashes the housing and stock market?

  25. DR DOOM says:

    Inflation is +8%. Money supply has not been dented by Jerome. Jerome and Mrs Magoo are on the record that money supply,aka money printing does not cause inflation. Supply Chains cause inflation. Unloaded boats floating in the Pacific cause inflation. Their bitch masters in DC do not give a shit about inflation so why should Jerome or Mrs Magoo. The President is not really clear if 8% inflation is really a bad thing. 50 years of being wrong can cause confusion and this inflation causing supply chain thing has made it really hard to find those 78’s for the record player in order to get a good nights sleep.

  26. Winston says:

    In your YouTube interview on the Wealthion channel, you said you expect a mild recession combined with a likely inability of the Fed to get inflation under control. Doesn’t that set up the lose-lose stagflation dilemma?

    • Wolf Richter says:

      What I think I said was that if the Fed doesn’t crack down hard enough, long enough, we might get a mild recession sometime (not now) without getting rid of inflation — that this is a risk.

      Bringing down asset prices from their bubbles through QT will go a long way to reducing inflation pressures, without raising interest rates too far. So the Fed might raise to 3% or 3.5% and do QT, and long-term rates rise because of QT, and asset prices come down hard. This might just cause a mild recession and yet get rid of inflation. This would be the optimistic scenario, I think I said.

      But the risk is that the Fed will back off too soon, and inflation won’t go away, and then we just keep muddling through with higher interest rates, and lower asset prices, and more inflation for years.

  27. RemoteWorks says:

    > It recognized that it wouldn’t be able to pass on all the cost increases it’s facing, though it would be trying.

    This should have been the assumption given what tiny savings rates households in the US manage to achieve. Americans have no buffer to cushion high energy and food bills.

    Expect a round of unprofitable store closings both for Walmart and Target.

  28. Swamp Creature says:

    The state of Washington is bracing for $10/gallon gasoline. They will have to redo all the pump signs to handle an extra digit. The plan is to use tape in the interm to put a “1” next to the zero when the price goes over $9.99/gallon. This will be the norm nationwide until all the pumps can be recalibrated.

    • Sams says:

      Just switch to price petrol by the pint and $9.99 will last a little longer.😉

    • Cookdoggie says:

      They use one of those digits for the archaic 9/10 of a cent add on, maybe they could get rid of that?

  29. Bobber says:

    I firmly believe the current inflation is entirely attributable to the wealth effect, specifically in RE assets.

    The Fed has been expanding wealth inequality for decades, but for most of this time, the Fed’s dirty work only raised the price of equities, which are 90% owned by the top 10% of the population. Spending by the top 10% can provide only a limited amount of stimulus, which is insufficient to support long-term economic growth.

    To “solve” the problem, the Fed pegged interest rates down to near zero for 5-10 years. Well, this decreased 30-year mortgage rates down to the sub-3% range, at which point EVERYBODY with a home refinanced. In other words, a huge chunk of the population was able to lock in mortgage payments much lower than the true cost of capital. Plus, many people with small mortgages or no mortgages reaped huge unrealized RE gains, without any increase in cost of ownership.

    Now, a huge chunk of the population is feeling wealthy. They believe their wealth is more or less secured, and they are spending. They know the Fed has blessed them with tremendous riches, and the Fed cannot take that benefit away, given it’s been secured in the form of ultra-low rate 30-year mortgages. It’s also explains the consistently low housing inventory, which could for many years as people hold on to these once-in-a-lifetime mortgages.

    I think the CPI inflation will subside only when RE prices start to drop.

  30. Michael Engel says:

    1) SPX weekly : between Sept and Oct 4 2021 the spread became short.
    After shortening the thrust SPX moved up.
    2) The downtrend line coming from Sept 20, Sept 27 and Oct 4 lows supported Feb 22 2022 low and split May 9 close and May 16 open.
    3) This line might support SPX one day in the future at lower levels.
    4) It’s not a neckline, because its tilting too much.
    5) BRK/B look like Boeing after it was shot down in Feb 2019. BRK closed Feb 24/25 gap, trading under BB #1 : Jan 10/11 2022. BRK might move up to the trading range.
    6) BA closed Apr 23/24 2013 gap. After 50% retracement BA made a round trip all the way to down to Sept 19/23 2013 BB, 0.886.

  31. SoCalBeachDude says:

    JPMC has assured us today that it believed gasoline prices will reach a national average by Labor Day in September, so now would be a great opportunity to invest in major oil companies who are price gouging to the most extreme level profits in their history and that will only get better as we go through a wonderful Summer!

  32. David Hall says:

    Housing prices up 21% YOY.

    Land, materials and labor costs are up.

    Median home prices have continued to rise. No evidence of widespread panic selling.

    Rental vacancies 5.8% in Q1 up from 5.6% in 2021 Q4. 5.6% is the lowest rental vacancy rate since 1984 – FRED Data.

  33. Kleen says:

    The people responsible for all of this are going to be just fine. They are invested to win. They have already positioned their money to enrich themselves at our expense.

  34. Cristy Jordan says:

    I’m surprised at this headline article: “Inflation may be a lot lower than anyone thinks — even the Fed” found today 5/24/2022 on MarketWatch. In essence, a 4.0% change from March to April constitutes this title and inflation maybe lower? What are these people on? Thank goodness we have Wolfstreet.com for real news and analytics.

  35. Cookdoggie says:

    I’m surprised only one mention in the comments of this : if revenues are 2-4% higher than same period last year, but inflation is 8% higher aren’t real revenues down year over year? Maybe that’s part of why their stocks crashed. They aren’t even growing now.

Comments are closed.