Transportation Costs Drop

Housing starts and permits and existing home sales data from last week indicate that the US housing market remains strong but is starting to gradually slow. In the week ahead, we will be closely following this week’s FOMC meeting. The consensus expects that another interest rate hike of 75 basis points will be announced as the Fed continues to try to cool the economy in the hopes of combating elevated inflation. One important trend we’ve also been consistently tracking is the fairly steep decline in global transportation costs. This is potentially telling us two things: 1.) Supply chains are improving: This is a positive development as supply chain disruptions have remained a significant drag on growth since the start of the pandemic. 2.) The economy is slowing down: Shipping, freight, and related costs could be dropping simply because there’s less demand for goods globally. This may be signaling that the global economy is slowing—perhaps more substantially than expected. The bottom line is we expect to see inflation come down over the next six to nine months and we are carefully watching for signs of a hard or soft landing in that context.

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