Correlation Between Oil Price and Inflation: Chart

Posted by on

Inflation in the US continues to remain stubbornly high. Currently the annual inflation rate is at 3.7% based on June data. This rate is still higher than the Fed target rate of 2%. The actual inflation rate that a consumer sees such as food, insurance premiums, etc. have risen to astonishing levels in the years since the pandemic. Inflation may rise higher due to soaring oil prices. When the price of crude oil rises it has impact on pretty much everything. To add insult to the injury so to speak, Western ally Saudi Arabia and Western enemy Russia announced cuts in their supplies to the world market in order to maintain high oil prices. This is not surprising since Saudis could always use an extra dollar to do whatever they do with all the oil revenues. Russia of course wants to take revenge on the Western world due to all the sanctions that were imposed following its invasion of Ukraine last year.

With that said, curious investors may be thinking on the relationship between oil prices and inflation. For instance, does high oil prices help drive inflation higher or lower. Inflation and oil prices are highly correlated. When oil prices go high inflation follows. The following chart shows the relationship between inflation and oil prices:

Click to enlarge

Source: 3 unmissable charts in the week: oil and inflation, US valuations and pensions by Nafeesa Zaman, Fidelity UK

The key takeaway is that investors may want to keep an eye on oil prices and be ready to buy quality should markets decline. Brent crude closed at $93.27 for November delivery. Analysts are predicting it may reach $100 again.

Related ETF:

  • United States Oil ETF (USO)

Disclosure: No positions

Checking on the Performance of Five Food Stocks

Posted by on

Food company stocks are in the doldrums this year. These companies were strong performers during the past few years due to the pandemic and other factors such as continuously increasing prices. However this year sales have stagnated and consumers are no longer willing to put up with high prices and they are switching to cheaper generic options. High yields offered on CDs, bonds and other fixed income products have made their stocks unattractive as well. Investors think why they need to invest in a food stock such as General Mills(GIS) which pays a dividend yield of 3.6% when they can easily get a 5% or more in a 1-year CD. Traditionally these consumer staples have been regarded as great dividend stocks. However that is not the case now. With the restart of student loan repayments in October, the already tapped out American consumer will further cut back on pricey and discretionary food items.

With that said, it is surprising to see that Hershey(HSY) stock has performed very well so far this year among five select food stocks. In the past 5 years also, Hershey has beat others with more than doubling the share price as shown in the charts below. HSY currently has a divided of 2.29% and market cap of $43 billion.

Year-to-date price return of select food stocks:

Click to enlarge

5-year price return of select food stocks:

Click to enlarge

Source: Yahoo Finance

Note: The above returns do NOT include dividends and are as of Sept 22, 2023

From an investment point of view, it is better to wait for further declines and consider adding them in phases. As mentioned above, at current levels these stocks are unattractive and these companies cannot depend on price rises to juice earnings going forward.

Referenced Stocks:

  • Campbell Soup Company (CPB)
  • Hershey Company (HSY)
  • General Mills, Inc. (GIS)
  • Kellogg Company (K)
  • J.M. Smucker Company (SJM)

Disclosure: Long GIS

Beer Taxes in Europe by Country: Chart

Posted by on

Taxes on beer vary widely among the countries in Europe. The EU requires every country to levy a minimum of €0.03 ($0.03) for a 330ml (11.2 oz) beer bottle with 5 percent alcohol content according an article at Tax Foundation. Germany, Luxembourg and Spain charge the lowest taxes on a beer bottle at the minimum rate defined by the EU. This is not surprising as Germany is a beer-drinking nation for ages and Spain is popular with tourists especially the British for its cheap beer. The German rate is also the lowest among the OECD countries.

Click to enlarge

Source: Tax Foundation

In addition to the excise taxes shown above all countries levy a Value-Added Tax (VAT) on beer when it is purchased by consumers. Consumers see the VAT added to a bill just like any other item but do not see the excise tax.

Putting The National Debt of Over $33 Trillion in Perspective: Infographic

Posted by on

The US national debt crossed $33.0 Trillion on Monday, June 18th according to the Treasury Department. A government shutdown may occur if federal funding is not extended by the Congress before Sept 30th. 33 Trillion dollars is such as large number it is impossible to even understand how such a debt is possible. As this figure goes higher and higher each year, ordinary people may simply not care about since it might as well be $100 Trillion or $500 Trillion. Beyond a certain amount it almost sounds like just a lot of zeros which have no meaning.

I came across the following neat infographic that puts this huge debt mountain of the US in perspective:

Source: Peter G.Peterson Foundation