Last Tuesday, the U.S. posted hot January 2024 inflation that sent markets lower. It rebounded for the rest of that week until the last hours of Friday, Feb. 16, 2024. That morning, the Bureau of Labor Statistics posted Produce Price Index rose by 0.3% or 0.9% annualized.
Inflation in production costs is bad news for companies and consumers. Firms needed to pay more to service providers, up by 0.6% on the month. The increase in traveler accommodation, portfolio management, and hospital care are costs that hurt consumer disposable income levels. Investors should grow increasingly wary of conglomerates that cannot pass higher prices to customers. Johnson and Johnson (JNJ), Pfizer (PFE), Colgate-Palmolive (CL), and Proctor and Gamble (PG) may face profit margin pressures next.
Food firms like Mondelez (MDLZ), Pepsi (PEP), and Coca-Cola (KO) will have an uphill battle relying on their brand strength to grow their revenue.
The 0.3% PPI increase is at highs not seen since August 2023. Consumers ultimately end up paying more for their goods. Without wage inflation, their disposable income falls.
Beware of U.S. Treasury bonds on the long-term maturities. The 20+ Year (TLT) and 10-Year Treasury (IEF) could resume their sell-off. Markets will restart pricing in the prospect of high interest rates. If inflation persists, markets may start bracing for at least a 25 bps rate hike.
