US inflation data came yesterday. All hell is breaking loose again. Again, rote economists and fearmongers came out and America's endless inflation problem, the FED may even consider raising interest rates, we are finished, we are dead, stocks will fall, sell everything, this nonsense has started again. I don't give a damn about such noise. Now, when you go into details, you will see that there is no inflation problem in the USA. There are some faults in one or two pens. Some of this has to do with overly ambitious corporate executives, some of it is structural, some of it has to do with the way the Fed calculates inflation, but inflation continues to fall rapidly.

What they have to say is not a positive investment advice, but it would be beneficial not to make any financial transactions without reading it. Because the market is full of empty noise. Headline inflation CPI came to 0.4 month-on-month, the expectation was 0.3. Therefore, annual inflation went from the expectation of 3.4% to 3.5%. The previous month's inflation was 3.2%. Here, one may fear that inflation is rising too fast. But the main reason for this was that the base effect was not much in March. When we look at the core inflation, it came to 0.4 monthly, the expectation was 0.3, slightly above the expectation. Therefore, we went from 3.7% to 3.8% annually, above expectations. We are the same as last month at the annual level. The rote economists of the world end their research here and say inflation is terrible. Of course I'm not like that, I'm a detail oriented person.

When we look at food inflation, this month's inflation is 0.1%, when you annualize eating from home, it reaches 1.2%, no problem. Eating out has increased slightly by 0.3%, and its impact on inflation is around 5.36%. But eating outside is frequent. Therefore, it would be difficult to draw a huge generalization from here. It is 4.2% annually, but when we look at the total food category, there is 2.2% annual inflation, in line with FED expectations. Moreover, the FED was expecting these numbers in 2025 - 2026, and they have reached there now. There is no problem with food.

When we look at the energy, frankly it was better than I expected. In the previous month, inflation in energy commodities was 3.6%, but it decreased to 1.5% monthly, but the number is still there. Inflation in energy services was 0.8 and decreased to 0.7. When we look at the total energy category, it is 1.1% monthly and 2.1% annually. There seems to be no problem here either. As long as the rise in energy prices stops. If we look at the products, when we exclude energy and food related products, inflation is - 0.2 this month, when we look at the yearly year - 0.7. There is only one exception item here. There is a slight increase in clothing. It went from 0.6 to 0.7 per month. However, automobile prices increased from -0.1 to -0.2, second-hand vehicle prices increased from 0.5 to -1.1, and there was a slight increase in medical products but at 0.2 level. It already comes to 2.5 annually. We don't have a problem there either.

Inflation in tobacco products decreased again, from 0.8 to 0.4. So, excluding energy and food, inflation in all product categories is -0.7. This situation may increase slightly this month. Because, as you know, commodity prices are going up fast, but new data came today. Inflation in China is on the decline again, especially with negative inflation in the producer price index. Since America imports most of its products from China, it is difficult to expect high inflation here again in the coming months. It's already in minus now. When energy services were excluded from services, inflation reached 5.4. This is scary, 0.5 per month. This is where it gets scary.

In other words, there is no inflation in the product category in which the FED can mainly intervene. There is no inflation in food. There is inflation in energy, but the FED cannot intervene in it much anyway. But when we come to the services side, things seem a little depressing. That's why they call it sticky inflation. There is an inflation rate of 0.4 in housing. This is the same as the previous month. When we look at the annual basis, it is 5.7%. When we divide this into subcategories, remember on the rent side, we have two categories here. The rent asked to the tenants, that is, the rent coming from the contracts, has decreased there, from 0.5 to 0.4. Landlords at least did not raise it, and their rent expectations remained at 0.4. So, there is no increase in rents in the FED report, which is pleasing. Because it is a very large item, the total weight of the two reaches 36%. We don't seem to have any problems here either.

There is a problem with medical services. Inflation here has reached 0.6 this month, but in fact it is still 2.1% annually. Inflation in hospital services is at 1%. It also reached 7.5% annually. Now the question here is; Can the FED reduce the bills charged to patients in hospitals by increasing interest rates? It cannot be reduced, the problem here is a structural problem. Either the number of hospitals is not enough, or the number of doctors is not enough. We also know that 1-2 years ago, especially during this Covid period, nurses and doctors were given serious raises in America. Maybe we are still seeing its effects. Inflation here is not an issue under the FED's control.

Let's talk about transportation services, inflation seems to be very high here. 20% annually, 1.5% monthly. Now here you will say, "Oh, transportation in America is very expensive, not really." There are two items that increase this, and they are connected to each other. One of them is vehicle maintenance and repair services, there is a monthly inflation of 1.7%, reaching 8.2% annually, and car insurance, the record here is 2.6% monthly and 22.2% annually. Flight tickets have decreased by -0.4 this month and -7.1 annually. So, to summarize, there is no serious inflation item left here except car insurance and medical services. In others, there is either negative inflation, inflation at targeted levels, or inflation going in the right direction with minor monthly movements.

The inflation story of the whole of America boils down to two items. No one else gives you this important information and says that the FED should increase interest rates. However, there is actually complete success in all inflation items that the FED can reduce by increasing interest rates. But we have two pens where the trouble continues. Now let's look at the details of how big the impact of those two items is. When we look at annual inflation, vehicle insurance increased by 22.2%. Rents come right after that. Home purchasing is still high, though there is a decline, which we'll talk about a little later. Eating out at restaurants is expensive, personal services are expensive. These are slightly high, but there is a serious decrease in all items where the FED has a direct influence.

Products, airlines, toys, used vehicles, new vehicles are all in negative inflation. The region in between is progressing within the framework of the targets. These are already below the FED's target for this year. This means that we need to look at a few items in more detail, especially vehicle insurance and rent. If you want to make good predictions, you need data. In this context, I also follow fundstrat. It presents very interesting data here. Fundstrat says that there is an increase in the total rate of inflation items whose inflation rate falls below 3% from year to year. Many inflation items were below 3% in 2020. Then, with Covid, this number drops significantly. Currently, we are going upwards regularly. Yes, it has not yet reached the 2020s, but the annual inflation rate of more and more items is falling below 3%. Let this be one more piece of information to remember.

Vehicle insurance does not stop, there is a 22% increase from year to year. When we look at the monthly basis, it increased by 0.85 in the previous month. The month before that it was 1.42%. 2.58% this month are incredible numbers. We should not consider vehicle insurance as a single item. Vehicle insurance is directly linked to vehicle maintenance and protection services and to rented vehicles. Because we know that there is more damage to rental cars. When we look at the direct effect of these three items on inflation, because in order to understand the direct effect, we need to look at the multiplier effect on inflation. I don't know why car insurance has a very high rate of 3.6%, car maintenance services has a rate of 1.6%. On the other hand, car rental services have a rate of 0.7. Vehicle insurance, when multiplied, has a direct effect on monthly inflation of 0.09. Vehicle maintenance services and rental services directly affect monthly inflation by 0.03 and 0.02, respectively.

When we look at the impact of core inflation, the impact of these 3 items was 0.08 in February, and it increased to 0.14 in March. There is a difference of 0.6. Remember, core inflation is at the level of 3.8, consider the difference of 0.6, core inflation comes to 3.2 and turns into a number that the FED will be very happy with. So insurance is a bigger problem than we think. So why are vehicle insurance rates so high and will there be a downward trend? First of all, there is a time effect; car insurance will decrease with a delay. An economist named Anna Wong provided a nice chart. If you put new cars, vehicle parts, vehicle maintenance services and vehicle insurance on a chart and look at it, new vehicle prices, vehicle maintenance services, vehicle spare parts peaked in January 2022.

Now, if your car is damaged during that period, the insurance company charges your next premium at these high prices. That's why they follow the increase in insurance prices, vehicle prices, maintenance prices and spare parts prices with a delay. Because insurance policies are made from year to year. If you look at it, the upward trend in insurance will actually gradually soften. Because as we approach the new insurance periods, there is a downward decline in car prices, spare parts prices and maintenance prices. A second reason is that insurance companies in America increased their profits while they had the opportunity. I read a report today that lately tremendous profits have been made from automobile insurance in America. Because the premiums have increased a lot and the damages are below that.

There is also a structural issue. New cars have more electronics. It is not possible to repair a car the old way. Therefore, structurally, the repair costs of cars will not decrease much before 2020. In particular, the number of electric cars will increase. In case of an accident, the cost of damage to electric cars can be very high. So can the FED do anything here? He can't. Can the state do anything? The state can do it. For example, it can go after these insurance companies and question them, but there is nothing the FED can do.

We also need to include accommodation. The multiplier for housing comes to a very high 45.4%. Here, there is rent, rent paid to landlords, staying in hotels, house maintenance services, insurance, etc. Its total weight in inflation is 45.4. The direct impact on inflation this month is incredibly high at 1.28 points. So there is actually a pen on the car insurance here. When we add 2 items, the core comes to 3.8%, and when we deduct these 2 items, it comes to 1.2%. It is not possible to reset these two items, but there is a bit of excess in the car insurance I just mentioned. The same situation applies to rents. One of the reasons for this is again delays.

According to the FED report, rents continue to fall in America. But this takes a while. It's just a matter of time, and the main factor behind this time issue is that lease agreements are made from year to year. It takes time for new leases to fall through. High interest rates also have a negative effect here. When interest rates are high, new home construction slows down. Mortgages in America have reached 7%. Therefore, the supply of houses is also reduced. In other words, the FED's interest rate hike actually plays an increasing role in inflation, when we look at the house rents side. The decline in house rents and insurance will be the main issue that determines the course of inflation in the coming period.

Everyone is talking about oil and commodities. They have some effect, but their effects decrease in the core. The main issue came down to just these two items. Therefore, I am positive, there is no change in my opinion. Yes, the FED's interest rate reduction process may have been postponed a little. Because the FED definitely has these details, but when we look at the bottom figure, it may be difficult for the FED to reduce interest rates while the issue of 3.8% core inflation is being discussed. The press may claim that the FED is being too political on this issue, but FED officials see this. That's why it started to be mentioned yesterday that the FED may increase interest rates again, look, inflation has started to rise again. These are complete bullshit. There are two items that I have presented to you with numbers, and the FED's intervention has no effect on either of these items. In fact, the impact can be negative, especially on the housing side.

We also need to focus on this 2% issue, the FED's target. In fact, the United States has barely had 2% inflation. Charlie Bilello shared it on Twitter yesterday. The last 1-year headline inflation average was 3.5%, 2-years was 4.2%, 3-years was 5.6, 4-years was 4.9, 5-years was 4.2, 7-years was 3.6. So right now, inflation is already at normal averages in America. Why did the FED restrict itself to this nonsense of 2%? That too is a matter of separate discussion. Fundstrat actually explained it well. After every inflation report, the markets shake like this and they fall. But then the rise starts back.

I think the rise will start back. Because on the first day, there is panic due to these headlines, and algorithms come into play. Individual investors are also panicking, etc. Then, as we go into more detail, it seems that we are actually on the right track. In this context, I still think that there is a possibility that the FED will reduce interest rates in June. Especially when we see how big the base effect is in April inflation. If you look at the inflation rates for 2023, it was 0.5 in January and 0.4 in February, then it decreased to 0.1 in March. Therefore, it could not benefit much from the base effect this month. Therefore, the base effect comes into play again in April. Last year, inflation was 0.4 in April.

So, for example, if inflation reaches 0.3 next month, it means that the downward trend in inflation has started again and I predict that inflation may reach 0.3 or below in the next month. At the end of last year, I said that good inflation data would come in January, February and March. But after the data came out in January, I kept quiet and said that the calculations were a bit complicated now. It seems like it will take time to dissolve this stickiness in some pens. I think it will be low in April. Because the base effect comes into play again in April. I think we will start to see the concrete effects of the decrease in rents. Low inflation came from China again, I think it will have a positive impact.

Unless there is a serious jump in commodity prices, especially energy prices, next month will be the period when inflation begins to decline again in America. Of course, I could be wrong in this regard, but I think this way. In the short term, interest-sensitive stocks will continue to be beaten. Companies whose product sales are sensitive to interest, such as Tesla, whose sales increase with credit. Because its valuation is sensitive to interest. Because the interest on discounting future cash flows to today increases. It is sensitive to interest because Tesla does not have such a situation, but this is a big problem, especially in small companies. That's why the IWM small companies index took a beating yesterday. They seem to have too much debt and too little money. Therefore, in the short term, such companies will be beaten.

Yesterday, money flowed to places like Meta and Nvidia. Because they have no debts, their cash flows are very strong, neither their business nor their balance sheets are negatively affected by interest rates. But if you ask me, this period is the period to collect those affected by interest. Because inflation is falling. Eventually, those vehicle insurances will come to their senses. Eventually, the real numbers will be reflected in the rents. Even if it is not so, I think the FED will eventually make this statement.

I have completed the struggle on the items I was able to struggle with. Government policies are needed for the remaining items. Housing supply needs to be increased. We think we beat inflation. Interest rate cuts may be reasonable here. Otherwise, we may put the country into recession. In this context, I am not pessimistic at all, I still maintain my optimism. I do not give up my goal that the S&P 500 will rise above 6000 by the end of the year. I hope it was descriptive and clear.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.