During the pandemic, we were all at home buying things online and supply chains were constrained, and goods inflation went up.
Then, when the pandemic was over, goods inflation came down, and service sector inflation went up as we started spending money on restaurants, hotels, and airline tickets.
Now the service sector is in the process of cooling down, and as a result, service sector inflation is declining. Specifically, ISM services prices paid is a leading indicator for headline inflation, core inflation, core services inflation, super core services inflation, and average hourly earnings, see charts below.
In other words, goods inflation normalized in 2022. And service sector inflation is normalizing in 2023.
Combined with rapidly falling inflation expectations, see the last chart, the bottom line is that inflation is coming down to the Fed’s 2% inflation target, and the Fed can later this year begin to move the Fed funds rate down to the r-star level around 2.5%.
In short, this inflation episode will soon be over.
This presentation may not be distributed, transmitted or otherwise communicated to others in whole or in part without the express consent of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”).
Apollo makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness, or completeness of any of the statements made during this presentation, including, but not limited to, statements obtained from third parties. Opinions, estimates and projections constitute the current judgment of the speaker as of the date indicated. They do not necessarily reflect the views and opinions of Apollo and are subject to change at any time without notice. Apollo does not have any responsibility to update this presentation to account for such changes. There can be no assurance that any trends discussed during this presentation will continue.
Statements made throughout this presentation are not intended to provide, and should not be relied upon for, accounting, legal or tax advice and do not constitute an investment recommendation or investment advice. Investors should make an independent investigation of the information discussed during this presentation, including consulting their tax, legal, accounting or other advisors about such information. Apollo does not act for you and is not responsible for providing you with the protections afforded to its clients. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any security, product or service, including interest in any investment product or fund or account managed or advised by Apollo.
Certain statements made throughout this presentation may be “forward-looking” in nature. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking information. As such, undue reliance should not be placed on such statements. Forward-looking statements may be identified by the use of terminology including, but not limited to, “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology.