Sticker shock 💸

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Sticker shock 💸

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New inflation data came out this morning and our collective response was: Yeesh...OK. I guess let's get into it?

By Allison Morrow

📈 INFLATION NATION

It's another "really bad news mixed with a little good news" kind of day on the economic front.

Let's start with the sticker shock: US inflation hit 7% last month, the steepest climb in nearly 40 years. And, yeah, that… really blows.

The cost of housing, used cars and trucks were the biggest contributors to the December price hikes. Food costs also went up in nearly all major grocery categories, with fruit and vegetable prices rising the most. (More bad news for vegetarians: Meat prices were one major category where prices have actually started to come down.)

We don't really do positive spin here at Nightcap, but what we can offer is a bit of perspective, courtesy of my colleague Chris Isidore.

Here's the thing: This inflation feels bad, but it's nowhere near 1970s bad:

Inflation was at 12% in the mid-70s, and didn't peak until the spring of 1980, hitting a record 14.6%.
The factors that created that situation are, thankfully, not really an issue today. For example, even though wages are going up now, there's no evidence of a dreaded "wage-price spiral" forming.
Global trade has increased competition and kept prices low.
Critically, the US economy is far less dependent on foreign oil now than it was 40 years ago.

The billion-dollar question now is: When can we expect inflation to go down?

In the optimistic camp, there are economists who say the worst is now behind us. But even the most optimistic observer says prices aren't going to come down overnight.

"A year from now… inflation will be low enough that we won't be talking about it, wrote Mark Zandi, chief economist for Moody's, in a recent essay for CNN Business. "The hair-on-fire discourse over high inflation is understandable, but it's overdone."

If you're a pessimist and want a worst-case scenario, allow me to point you to the (unlikely but still possible) nightmare laid out by my colleague Paul La Monica, who talked to economists about what happens when prices keep rising but the economy slows — a phenomenon known as stagflation.

Right now, inflation is an irksome but manageable symptom of an economy in recovery – people are still spending, and unemployment is low. It's a good problem to have. But if growth were to contract and prices didn't come down, the Fed would have few tools to fix it.

RELATED: In the latest "shrinkflation" shrinkage, Domino's is cutting the number of wings in its $7.99 carry-out offer from 10 pieces to just eight because of rising food and labor costs.

#️⃣ NUMBER OF THE DAY

0.9%

Let's zoom in on that aforementioned good news for carnivores: After rising for months, meat prices are finally falling at the grocery store. Prices for meat, poultry, fish and eggs fell 0.4% from November to December. Within that category, meats overall dropped 0.9%. Although beef, veal, pork chops and hot dogs got a little cheaper, prices went up for breakfast sausages, lunch meats and chicken.

🛍️ BIG PLANS

The retail story for much of the pandemic (and even pre-pandemic) has been the death of brick and mortar. Everyone's buying online, going to an actual store is so 90s, etc.

While there's some truth to that — the pandemic did force retailers to scale back their physical footprint – there's a hearty crop of chains that appears to be immune to the upheaval.

Big Lots, the purveyor cheap furniture and home décor, is betting big on in-person shopping, and plans to open more than 500 new stores over the next few years, CNN Business' Nathaniel Meyersohn reports. That's a big pivot for a store that hasn't expanded in a decade. It currently has some 1,400 stores in 47 states.

For the uninitiated: Big Lots is a quirky little megastore.

It's a no-frills outlet for just about everything — they've got mattresses, lamps, kitchen appliances, toys, snacks, pet food, cleaning supplies. Think Pier One meets Hobby Lobby meets Walmart.
Executives — and this is not a joke — refer to its target customer as "Jennifer."
That eclectic inventory has been a lifeline: Big Lots was deemed an essential retailer early in the pandemic because it sells food and household staples, which allowed it to stay open while other furniture chains closed.
Then came the Great Redecoration of 2020, when everyone stayed home for a few months and got tired of every rug, accent pillow and end table in their homes. In 2020, sales at stores open at least a year increased more than 16%.

The company did stumble a bit last year, with sales falling 4.7% in the first 10 months. Like other discount stores with low-cost operating models, Big Lots was hampered by supply shortages and higher labor, shipping and transportation costs.

Big Lots isn't alone in its optimism at the future of brick and mortar. Dollar store chains are enjoying something of a renaissance in America, accounting for almost half of new store openings last year. Similarly, chains like Five Below, Burlington, TJ Maxx and Aldi also expanded.

WHAT ELSE IS GOING ON?

🍽️ Procter & Gamble is solving a problem you didn't know you had: Dawn, the top-selling dish soap, has a redesigned bottle with "patented no-flip cap technology."

⚖️ Elizabeth Holmes, the former CEO of Theranos who was convicted on federal fraud and conspiracy charges, will not be sentenced until September 26.

💸 Wells Fargo announced changes to its overdraft policy, saying that it will give customers earlier access to direct deposits, a 24-hour grace period before incurring any overdraft fees and the elimination of non-sufficient funds fees.