3 Reasons Inflation May Be Peaking

Earlier this month, the Labor Department reported an 8.5% increase in the consumer price index in the month of March, the highest U.S. inflation growth since 1981.

Investors are growing increasingly concerned about rising inflation, but LPL Research chief market strategist Ryan Detrick said this week that investors may start getting at least some inflation relief in the near future.

“Although many fear the light at the end of the tunnel is indeed an oncoming train, we think there are some clues that inflation could be near a major peak and the move lower could be sudden, at least for durable goods," Detrick said.

Related Link: 'Probability Of Stagflation Is Increasing': Experts React To 8.5% CPI Inflation, Highest Since 1981

Reasons For Optimism: First, Detrick said a chip shortage drove used car and truck prices up nearly 45% year-over-year in early 2022. Fortunately, used car and truck prices have started to decline sequentially in the last two months and are now up only 24.8% from a year ago.

Given used auto prices make up about 4% of the total CPI reading, at least one meaningful inflation contributor seems to have peaked.

Second, Detrick said the majority of the recent inflation has come in the form of what the Atlanta Federal Reserve considers "flexible" inflation, which is inflation in goods prices that tend to change quickly. These goods include fuel, apparel and dairy products.

The other type of inflation, "sticky" inflation, occurs in goods that have prices that change more slowly, such as motor vehicle fees, education and public transportation. Detrick said the inflationary period during the 1970s saw significant gains in both types of inflation, but today's scenario has seen significantly more flexible inflation than sticky inflation.

Finally, Detrick said the backlogs in major ports are finally starting to clear, potentially eliminating some of the supply chain disruptions that have contributed to higher prices.

Backlogs in the ports of Long Beach and Los Angeles are back down to around September 2021 levels, and Detrick said the cost of shipping is also falling quickly.

Benzinga's Take: These three indicators suggest there is reason for optimism that inflation levels may start falling in coming months. Yet investors clearly remain concerned about the potential negative economic impact of inflation given the SPDR S&P 500 ETF Trust SPY is down.