Pro Perspectives 2/29/24





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February 29, 2024

In this morning's PCE report, the Fed's favored inflation measure showed a continued fall in year-over-year inflation for the month of January.  That's four consecutive months under 3%, and approaching the Fed's target of 2%. 
We have one more inflation data point before the Fed's March meeting: February's CPI, which will come on March 12.
As we've discussed over the past few months, insurance continues to be the hot feature of the inflation data.
This is the impact of rising insurance premiums on shelter, physician services and (mostly) transportation.
The change in the motor vehicle insurance component of CPI was up 20.6% compared to January of 2023.  It's now up 39% from pre-covid levels.  Here's an update to the chart we looked at this past December …

And as we also discussed back in December, the good news: this is a lagging feature (likely a late stage feature) of a hot inflationary period.

Remember, the massive monetary and fiscal response to the pandemic (plus the subsequent agenda spending binge) ramped the money supply by 40% in just two years.  That was almost a decade's worth of money supply growth (on an absolute basis), dumped onto the economy in a span of two years.
That inflated asset prices.
And the insurance industry spent the past two years raising the price to insure those higher priced underlying assets.
With that, heading into Q4 earnings season, insurance companies were expected to grow earnings by 26% for full year 2023.  It turns out they doubled that growth rate (53% year-over-year earnings growth).
This chart of Allstate looks like many of the insurance stocks …