Inflation to stay sticky unless employment improves: Strategist

The Producer Price Index (PPI) reading came in hotter than expected for the month of April, signaling that inflation remains stubborn. Allspring senior portfolio manager Bryant VanCronkhite joins Market Domination Overtime to discuss upcoming economic data and what the Fed needs to keep in mind to curtail inflation.

Bryant VanCronkhite identifies a key challenge for the Fed: "I think inflation could stay sticky, largely because the problem here is the employment situation. Both the quality and the quantity of labor is not meeting the needs of the small businesses and large businesses and what they need to drive their businesses forward. And so unless we see that employment situation get fixed, I think inflation is going to stay a little bit sticky right now."

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This post was written by Nicholas Jacobino

Video transcript

Well, markets closing higher today, the big economic data point today, another hotter than expected inflation report this time on the wholesale side, producer prices rising more than estimated in April comes ahead of tomorrow.

CP I consumer price print for more on what that means for investors.

Let's bring in Bryant Van Cronkite portfolio manager at all spring.

Thanks for being here.

Thank you.

So this is not the relief that people were hoping for perhaps on the inflation front today.

But I know that CP I is seen as more important in the eyes of the market.

But how are you sort of weighing the PP I report under the covers?

The PP I report was more benign than maybe people feared on the on the on the surface.

So I think it's a good sign for, for maybe people who are worried about inflation staying sticky in the market, I think moved higher in that today.

But there's a lot of pressure on the CP I tomorrow.

I think there's a the market clearly is hoping the fed can jump through that ever closing window with a prospective rate cut, but inflation has to co-operate and every data point we have going forward is one more chance for that window to slam close on them.

So tomorrow is a big day, the market could be volatile around it and we'll see what it has in store for us.

And Brian, are you in the camp that confident that actually inflation, you know, the trajectory that we do get back to Jay Powell's target and he is able to cut this year.

I'm actually concerned we're not gonna get there at the pace.

The market thinks we're gonna get there.

I think inflation could stay sticky largely because the problem here is, is the employment situation, both the quality and the quantity of labor is not meeting the needs of the small businesses and large businesses and what they need to drive their businesses forward.

And so, unless we see that employment situation get fixed, I think inflation is gonna stay a little bit sticky right now.

The only thing that could maybe change that in my mind is the consumer weakening faster, putting pressure on GDP, putting pressure on the economy, but that's not a good situation, but that could be our reality.

Right?

I mean, that's what we've always heard from people over and over again.

If the fed is cutting for quote unquote, good reasons, right, then the market can still go up.

If it's cutting for quote unquote bad reasons, there's too much slowing, they'll be judged not by what they do, but in which context they do it right.

And if we're seeing GDP dropping, unemployment rising is not going to care that they cut, they missed that prospective window.

Now they're reacting and that will not be a good thing for markets.

So, on the consumer spending side, are you seeing concerning signs?

It seems like we're hearing sort of anecdotally from companies that they're seeing some, a little bit of weakening the consumer has been remarkably resilient for much longer than I think most of us anticipated, certainly more than I anticipated.

But our channel checks this week even show it's slipping further and further up in the, in the income cohort.

So it started out as maybe the lowest end consumer starting to make tough choices trading down to more value categories, moving in a private label.

We're now hearing just this week that a lot of our grocery channel checks, our restaurant channel checks.

Even the retail, that consumer is now the the $100,000 household, which is, it's moving up now and as it moves into the middle income, that's when things get a little bit more dicey for me.

So I'm getting more and more concerned uh in the last week or two.

I mean, I should, Brian.

You know, we've been talking a lot on the show today, Biden, imposing these new tariffs.

Um And obviously a big part of that is just, it's just raw politics, right?

You're trying to win votes in key swing states, it brings the election kind of back in focus.

How, how much are your clients asking you about that right now, Brian, the they they recognize the elections bring volatility.

But ultimately, a lot of what we're hearing today is, is more politics, less economics, right?

The tariffs impact about 8% of the imports from China right now.

It's not, that wasn't a huge news event.

Clients are just worried about what's the plan going forward, right?

The regulatory backdrop for a lot of industries matters.

And it seems like whenever someone else comes into the White House, we cancel everything.

We just did the last four years and start again.

And that's frustrating for investors.

It's frustrating for a lot of people uh in every line of work.

And so when people want a stability, they're not gonna get it right now.

So we're just gonna kind of trudge through and the way to trudge through it is focusing on what a company can control.

Our approach to investing is really understanding how a company's financial freedom as measured by their balance sheet allows them to kind of navigate any market environment.

That's the key for investors right now is focus on what you can control, use balance sheets to measure that and then drive forward with your investments that way.