12-17-24: Stubborn Inflation Continues in the U.S. While Deflation Plagues China

by Louis Navellier

December 17, 2024

Last Wednesday, the Department of Labor announced that the Consumer Price Index (CPI) rose by 0.3% in November and 2.7% in the past 12 months. Excluding food and energy, the core CPI rose 0.3% in November and 3.3% in the past 12 months. The core CPI has now risen 0.3% for four straight months.

Food prices rose 0.4% in November, led by an 8.2% rise in egg prices, which should help my chicken stocks, namely Cal-Maine Foods (CALM) and Vital Farms (VITL). Energy prices rose 0.2%, led by a 0.6% increase in gasoline costs. Shelter costs (called “owners’ equivalent rent”) rose 0.3% in November, down from 0.4% in October, but the housing index still needs to fall further to keep inflation in check.

The next day, the Producer Price Index (PPI) was released, and we learned that wholesale egg prices surged 54.6% due to the bird flu on the West Coast. Overall, the Labor Department reported that the PPI rose 0.4% in November and 3% in the past 12 months, which is the highest annual pace since early 2023.

The core PPI, excluding food, energy and trade services, only rose 0.1% in November but is up to 3.5% in the past 12 months. Wholesale energy prices rose 0.2% (due largely to higher electricity costs) in November, while food prices (led by eggs) rose 3.1%. Wholesale goods prices rose 0.7% in November, while wholesale service prices only rose 0.2%, so goods-price inflation appears to still be a problem

You hear a lot of talk about tariffs causing more inflation, but China’s producer price index (PPI) declined 2.5% in November after a 2.9% decline in October, so China’s PPI has declined for 26 straight months now. Deflation is rampant in China due to its domestic real estate crisis, a shrinking population and lackluster manufacturing activity. This means that even if the U.S. imposes tariffs on imports from China, U.S. consumers would not suffer much added inflation due to this massive Chinese deflation on goods.

The National Bureau of Statistics in China also announced that its consumer price index rose 0.2% in November, down from 0.3% in October, so a weak economy is also suppressing consumer price inflation.

Political Chaos Continues to Spread Around the World

Over the previous weekend, Syrian President Bashar al-Assad and his family fled Syria as rebel forces captured major cities there. Assad had been protected by Iran and Russia for decades, but Iran and Russia withdrew their protection. Rebel leader Hassan Abdul-Ghani is now in charge after launching a surprise 11-day offensive before storming the Presidential Palace. Russia has two major military bases is Syria. The Russian Embassy advised Russian nationals to leave Syria, so it will be interesting to see if Russia can maintain its military bases, which reportedly are on high alert. The consensus is that the fall of Assad after 50 years of rule is that Iran and Russia’s influence is waning. There is clearly a leadership vacuum in the Middle East, so it will be interesting to see who will seek diplomatic relations with Syria’s new leaders.

In the meantime, the euro-zone remains “rudderless” due to France’s budget woes as well as Germany’s impending elections in February. French President Macron need to appoint a new Prime Minister who can work with Marine Le Pen’s National Party, which controls Parliament. If this euro-zone chaos persists, do not be surprised if the euro falls below $1 (vs. the U.S. dollar). The fact that the euro-zone is now in a recession and the European Central Bank (ECB) will be slashing key interest rates is undermining the euro. In fact, a Bloomberg survey is now forecasting that the ECB will cut its key interest rate to 2% by next June (currently, the key ECB interest rate is 3%). As European interest rates decline, it should also trigger a big rally in U.S. Treasuries, which should encourage the Fed to keep cutting dollar rates further.

Last Thursday, the ECB cut its key interest rate by 0.25% to 3% and lowered its forecast for euro-zone economic growth to a 1.1% annual pace, down from its previous forecast of 1.3%. Interestingly, the ECB dropped its mandate to “keep policy interest rates sufficiently restrictive for as long as necessary.” The ECB also added that the “effects of restrictive monetary policy” would be “gradually fading” over time. At her press conference, ECB President, Christine Lagarde said that the risks to growth in Europe are “tilted to the downside.” Clearly, the ECB will be cutting key interest rates further in upcoming months.

As if this were not enough chaos, Brazil’s President Luiz Inacio Lula da Silva had to undergo emergency brain surgery in Sao Paulo. Lula is awake and recovering, but only time will tell if he fully recovers. Lula has been a big proponent of boosting China’s influence and encouraging more trading in the Chinese yuan versus the U.S. dollar for international transactions. Naturally, China has invested heavily in Brazil, so Lula has effectively become a Chinese puppet. In the event that Lula is replaced, it will be interesting to see if Brazil’s next President keeps promoting the Chinese yuan versus the U.S. dollar, especially in light of the fact that Donald Trump proposed 100% tariffs on BRICS countries that undermine the U.S. dollar.

“Lawfare” Erupts Again, in the Final Weeks of the Biden Administration

Finally, I must comment on how the Biden Administration is continuing its “lawfare” attack on some Trump associates in the closing weeks of their hold on the Executive branch. Specifically, the SEC fined Cantor Fitzgerald $6.75 million over SPAC disclosure, which is especially interesting because Cantor’s CEO, Howard Lutnick, has been nominated for Commerce Secretary and is expected to be confirmed.

Also, CNBC reported that the SEC sent Trump’s co-leader of the Department of Government Efficiency (DOGE), Elon Musk, a “settlement demand” on a Twitter (X) buy-out probe. If Musk does not accept the SEC settlement within 48 hours, the report claimed, he could “face charges on numerous counts” regarding “Certain Purchases, Sales and Disclosures of Twitter Shares.” Gary Gensler, the outgoing SEC Chairman, received Musk’s response on “X” last Thursday: “Oh Gary, how could you do this to me?” Musk added that, “The SEC is just another weaponized institution doing political dirty work.” Ouch!

I find it interesting that the deep state is attacking some of President-elect Donald Trump’s key advisors. Even though Lutnick agreed to a settlement, it is evident that Elon Musk will be much more combative.

Navellier & Associates owns Vital Farms, Inc. (VITL), and Cal-Maine Foods, Inc. (CALM), in managed accounts. Louis Navellier and his family own Vital Farms, Inc. (VITL), and Cal-Maine Foods, Inc. (CALM), via a Navellier managed account.