| | | | | | | Presented By THE NORTHERN TRUST INSTITUTE | | | | Axios Markets | | By Emily Peck and Matt Phillips · Jun 13, 2022 | | 👋 Mornin'. We're still unpacking that hot CPI print from Friday, and digging into BlackRock's effort to democratize shareholder voting. (Hint: The beneficiaries aren't who you think.) 🚨 Situational awareness: Axios Macro, a new daily economics newsletter by friends of Markets, Courtenay Brown & Neil Irwin, debuts today! It'll hit your inbox around noon. Today's newsletter, edited by Kate Marino, is 1,132 words, a 4.5-minute read. | | | | | | 1 big thing: Inflation hits home |  Data: Federal Reserve Bank of St. Louis; Chart: Thomas Oide/Axios Visuals Skyrocketing food prices in the U.S. are changing the way Americans eat and shop — they're buying more store brands and less costly meat and produce. Some are just making do with less, Emily writes. - Meanwhile, food manufacturers continue to "shrinkflate" — putting fewer potato chips or cereal in the bags and boxes that we buy.
Why it matters: This is inflation hitting home, contributing to the overall bummed-out mood of the nation. - Once upon a time, grocery shopping mainly fell to women, but these days 92% of adults do it. That means most everyone's noticed rising food prices — and many have adjusted in ways both minor and potentially devastating.
Driving the news: The cost of "food at home" is up 11.9% from last year, the largest increase since April 1979, according to the scorching hot inflation numbers released Friday. - Nearly every category of food the government tracks saw accelerating price growth.
- Egg prices are up 32% year over year, thanks in part to a January bird flu outbreak. Fats and oils were next on the list at 16.9%, partly due to the war in Ukraine, followed by poultry (16.6%) and milk (15.9%).
Unusual trend: The increases in prices for food at home are outpacing food-away-from-home, which is up *only* 7.4%. - This is "historically unusual," JPMorgan analysts wrote in a Friday note. The growth differential is the widest since 1974, they said.
State of play: About half of shoppers who've noticed the rising prices are looking for more deals, according to a May survey from FMI, the food industry trade group; 35% are switching to store brands and 21% are buying less fresh meat and seafood. - Food is a big expense, especially for those on the lower end of the income spectrum. Nearly 16% of spending by the lowest-income Americans goes to food, according to the Bureau of Labor Statistics.
Businesses aren't just raising sticker prices — they're also shrinkflating. - Boxes of Post Honey Bunches of Oats now contain 17% less cereal, according to Consumer World.
- Also smaller: Chobani Flips yogurt and Folgers coffee, NPR reports.
The bottom line: Consumers have a lot of flexibility to adapt to rising food prices, in contrast to gas, where the choice is more binary — you can drive less, but you don't have any real product choices. - So we're adapting. Household weekly spending on groceries is $148, according to FMI. That's up 4% from last year, a far lower number than that scary CPI one.
Go deeper. |     | | | | | | 2. Catch up quick | | 🇨🇳 Chinese banks lend big, as Beijing aims to boost economy. (Reuters) 💴 The yen is at its weakest in 20 years, as Bank of Japan keeps printing. (WSJ) 📉 Global markets plunge on fears of high inflation, low growth. (NYT) | | | | | | | | 3. Charted: Things change |  Data: CME; Chart: Axios Visuals Sometimes things change. For instance, expectations about Fed rate hikes, Matt writes. Driving the news: Friday's sizzling inflation report reinforced surging expectations for Fed rate hikes this year. - This means traders and investors are overwhelmingly betting the central bank will hike hard and fast to rein in the sharpest price rise since the early 1980s.
Why it matters: Higher rates from the Fed could corral prices but at the cost of higher unemployment and slower — possibly negative — economic growth. - Oh, and fears of higher rates have done a number on the markets, where rising long-term rates — which the Fed helps determine — are key inputs in the formulas investors use to value shares.
How it works: This handy chart above is based on CME data from the market for Fed funds futures. It shows odds that traders, investors and speculators have placed on the Fed's target funds rate touching 2% by the Fed's September meeting. (It's now 0.75% to 1%.) - As recently as late March nobody in their right mind expected the Fed would push the funds rate to 2% by then.
- Now Wall Street thinks it's a done deal.
Why the sudden shift? Inflation is having a moment. - As prices have climbed, people have realized the Fed is going to hike, hard and fast, to get it under control.
What to watch: The Fed's announcement of its next interest rate hike on Wednesday, and chair Jerome Powell's press conference. (Wall Street is near certain it'll be another half percentage point.) But Powell may set the stage for faster, higher hikes soon. | | | | | | | | A message from THE NORTHERN TRUST INSTITUTE | | Prices, policy and portfolios — your questions answered | | |  | | | | Protect your portfolio against inflation with answers to common investor questions. The impact: Better understand the impact of inflation and how to fortify your portfolio and wealth plan in the face of uncertainty. Start learning now. | | | | | | 4. The problem with shareholder democracy |  | | | Illustration: Brendan Lynch/Axios | | | | BlackRock, the world's biggest fund manager, oversees trillions of dollars in index funds — which means that it gets a huge vote come proxy season, Axios' Felix Salmon writes. - Today, it announced a small amount of progress in terms of reducing that power by handing voting decisions over to institutions that invest in its funds.
Why it matters: The main winner from BlackRock's changes is Institutional Shareholder Services, or ISS, the proxy advisory service that was already the dominant power in all shareholder votes. Ironically, BlackRock's attempts to implement shareholder democracy might end up further entrenching the ISS monopoly. By the numbers: BlackRock has $4.9 trillion in equity index funds and historically has made voting decisions for all but a small $0.4 trillion slice of that pool. - Its new Voting Choice product, which allows institutional investors to choose to take voting control of their shares, has expanded that slice to $0.5 trillion over the past five months.
- BlackRock announced today it's expanding the pool of eligible investors to include more funds in the United Kingdom, Canada and Ireland.
The impact: Of the 6% of newly eligible institutional investors who signed on to Voting Choice this year, most simply switched from BlackRock's voting line to ISS's voting line. - Be smart: Both BlackRock and ISS vote with management most of the time. And even when they don't, they generally vote the same way. So the change will mean very little in practice, even as it increases ISS' power at the margin.
The big picture: Passive investors like BlackRock and Vanguard hold enormous power when it comes to shareholder voting, raising concerns from some about how they wield it. Between the lines: Addressing such concerns via "shareholder democracy" sounds great in principle — decision-making should be devolved down to the level of the beneficial owners of the capital in question. - In practice, however, if a pension fund owns a BlackRock index fund, then someone with assets in that pension is unlikely to care whether it's their pension fund or BlackRock that makes voting decisions.
- It's expensive to do due diligence on thousands of companies' proxies, and in practice, only huge investors like BlackRock dedicate the necessary resources to doing so. Everybody else generally just uses ISS or its smaller rival Glass-Lewis.
The bottom line: If and when individuals start being asked to make voting decisions, they're going to be extremely low-information voters. It's not clear that will be an improvement in the status quo. | | | | | | | | A message from THE NORTHERN TRUST INSTITUTE | | Create value from values | | |  | | | | Do ESG investments deliver on their promise? Investors worry about sacrificing returns or whether their investments will make a difference. Okay, but: Northern Trust can build a plan that reflects your values and achieves what's most important to you. Learn how. | | | | 📷️ 1 thing Matt loves: Judging from our inbox, Emily really struck a nerve with her musings on the free coffee — with weird unspecified creamer product! — she enjoys whilst filling up at her local gas station. So as a proud son of the 518, it's incumbent upon me to point out that the world's greatest affordable coffee/scratch-off lotto joint has to be upstate New York's own Stewart's Shops, where they will also give you a gargantuan ice cream cone, even after you try to be virtuous and order a "small." True facts. |  | It's called Smart Brevity®. Over 200 orgs use it — in a tool called Axios HQ — to drive productivity with clearer workplace communications. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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