The Ohio State University kicks off its 2024 football season by hosting my alma mater, the University of Akron, on Saturday, August 31st, at the Horseshoe in Columbus. There are big expectations for the Scarlet and Gray team this year. Several team members opted to come back for another chance at winning both the Big 10 and the National Championship instead of going to the NFL. There is significant pressure on Coach Ryan Day to live up to these massive expectations.
Source: Facebook and YouTube
As many of you know, my grandfather, who was valedictorian of his high school class, was offered a full-ride scholarship to Ohio State. He was not allowed to go because he had to stay home and work the dairy farm with his family. He made it his mission to ensure that all seven of his children, including my Mom, attended Ohio State. He was also a season ticket holder for more than 50 years. Many of my cousins and other family members also attended OSU. Family gatherings were planned around which bowl game Ohio State was playing in each year. Growing up in this family left you no choice as to what team you are going to root for.
Ohio State has a massive fan base and following, for both the football team and its marching band. Yes, more than 100,000 people stand and cheer when TBDBITL performs its signature Script Ohio formation each Saturday in Columbus. For those of you who would like a pick-me-up or a reminder, a YouTube link to this is included below.
Rachel and I were in Venice, Italy, in April this year for our 10-year wedding anniversary. There were three retired couples at the table next to us while we were having dinner in one of the many piazzas on our last evening there. We got to talking with them and as we got up to leave, Rachel said to me that the gentleman closest to her was wearing an Ohio State watch. As we said goodbye to them, I looked at him and said, “O-H,” to which he enthusiastically replied, “I-O!!” Rachel says to me regularly that Ohio State people are everywhere!
What does all this talk about Ohio State football have to do with inflation? I am glad you asked. You see, there are massive expectations about Federal Reserve Bank policy and what it will do to the rate of inflation over the coming months. As you can see in the chart below, inflation started to ramp up in 2021 as the economy was reopening from the COVID-19 lockdowns. This was accompanied by an unprecedented amount of both fiscal and monetary stimulus from the Federal Reserve Bank and the federal government.
Source: RSM
Our color-coded chart shows that during these early days of inflation pressure, energy costs and used vehicle prices, as represented by the Scarlet and Gray bars, were two of the main contributors to rising costs. This makes sense, as energy prices moved significantly higher after Russia's invasion of Ukraine. Likewise, used car prices moved up dramatically when new car production was severely limited due to supply chain constraints in the early days of the pandemic. Inflation, as measured by the consumer price index, CPI, peaked at 9.1% in June 2022. As of our most recent inflationary report in mid-August, inflation finally fell back below 3%, coming in at 2.9%. This has led to an expectation that the Federal Reserve Bank will finally be able to start cutting interest rates at their September meeting.
You will also note that those same Scarlet and Gray bars have largely been negative contributors to inflation for more than a year. This means that both energy costs and used vehicle prices have come down from their recent peaks. Most of the inflation pressures we are dealing with today are coming from the green and yellow bars on the chart. These represent auto insurance, in yellow, and owners’ equivalent rent, in green, which is how the Fed measures housing prices. In fact, if we removed these two inputs to inflation, you could see that prices would be relatively flat over the last year.
Here is an amazing stat from Zillow: Average multifamily rent rose a total of 22.3% from July 2020 to July 2022. Then, over the next two years (July 2022-July 2024), it rose only 5.1%. That’s national data, and costs may vary widely by your location. However, it seems clear the worst of the rent increases are over.
I would like to remind you that a moderating pace of inflation DOES NOT mean that prices have come down or are lower for most things you purchase. As you can see from our second chart below, from just before the pandemic started until the end of July, prices across the spectrum have risen by more than 20%, with a number of very important items rising significantly more than this. While prices are not rising as much as they had previously, polls show that many Americans are frustrated by the higher prices they are paying today. This is especially true when compared to average wage growth over the same time frame.
Source: Statista
Economist and market strategist David Bahnsen recently commented on the CPI: “My favorite highlight is that “eating at home” (grocery) prices are up 1% on the year, whereas restaurants are up 4.1% on the year. I suppose that either speaks to corporate greed with restaurants but not grocers, OR people perhaps like a professional chef’s cooking more than [a] beloved spouse’s.”Math and data actually matter, despite political rhetoric and proposals from either side of the aisle.
Just like there are massive expectations on the Scarlet and Gray team that plays on Saturdays in Columbus, there are growing expectations that the Federal Reserve Bank will finally take its foot off the economic break of the economy. There are concerns that if they do not do so soon, instead of dealing with an inflation problem, they may be dealing with an unemployment problem, as they could potentially slow the economy too much.
Over the next few weeks, we will see whether expectations for both the Ohio State Buckeyes and the Federal Reserve Bank play out as expected. I thought this was a fun and unique way to share some perspectives on inflation as we move into football season. We will do our best to keep you informed on important topics such as this as we continue “Moving Life Forward.”
© 2024 Jesse Hurst
Senior Wealth Manager
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Featured blog image source: iStock.com/Janis Abolins