The under is a direct excerpt of Marty’s Bent Challenge #1261: “CPI Shocks the Markets.” Join the e-newsletter right here.
The August 2022 client value index (CPI) print was launched on Sept. 13, 2022, and it got here in at 8.3% year-over-year progress, and surprising the entire speaking heads who had been sure that inflation was attributable to decelerate as the entire demand destruction the Federal Reserve has been trying to fabricate would start to hit the markets. Markets didn’t react nicely to the higher-than-expected print with all main indices falling round 4-5% throughout the board. What’s worse, the reported determine of 8.3% appears to be severely underreporting the precise stage of value inflation that buyers are experiencing for the time being.
I believe it is secure to say that the basket of products listed above will be thought of important items to anybody trying to stay a lifetime of relative consolation. Whenever you see these numbers, it is exhausting to not be completely insulted that the Fed and the Bureau of Labor Statistics would try and make you consider that costs have solely risen 8.3%. What’s even worse is that this year-over-year print is constructed on a comparatively excessive base that was set in August 2021. When you freaks overlook, inflation began rearing its ugly head summer time 2021 and that August introduced with it a 5.3% print. 3.3% greater than the Fed’s historic 2% goal.
Inflation measured by CPI through the Bureau of Labor Statistics.
There are numerous inflation-splainers on the market immediately who’re making an attempt to spin immediately’s print as a optimistic, saying issues like, “Month-over-month progress is principally flat. The inflation is beginning to decelerate and we must always see the total results of demand destruction start to take maintain within the months forward.” Your Uncle Marty thinks that is extraordinarily wishful pondering bordering on delusion. There are two specific components that I believe are being severely discounted; the draining of strategic petroleum reserves (SPR) and the truth that we’re heading into winter.
The draining of the SPR has been serving to to artificially tamper inflation on the pump. With the SPR set to be totally drained in some unspecified time in the future subsequent month, drilling groups being pushed to their limits right here in the USA and the Biden administration useless set on not permitting any new drilling permits to be granted, the provision facet of the oil and fuel markets goes to expertise a major shock, which can serve to place upward stress on fuel costs. Couple that with the truth that we’re headed into the autumn and winter months the place demand for vitality begins to extend considerably as folks start to show up the warmth of their properties and journey extra for the vacations, and it is not exhausting to see that we could also be within the eye of the inflation storm. That is solely with a deal with vitality costs.
Because the world has come to seek out, vitality costs, particularly pure fuel costs, are key inputs within the meals provide chains. With costs rising considerably earlier this 12 months throughout planting season, it mustn’t shock folks to see lagging meals inflation hit the markets later in 2022 as nicely. To make issues worse, evidently the U.S. is eager on escalating issues with China over their encroachment on Taiwan’s sovereignty.
Extra sanctions in 2022 ought to end up swimmingly for shoppers. If the U.S. decides to maneuver ahead with sanctions, it might exacerbate inflation issues in two methods, making it dearer or unimaginable for Individuals to entry China’s manufacturing capabilities and/or stoking a response by China by rising navy exercise round Taiwan, thus making it more durable for worldwide markets to entry the very important laptop chips produced by TSMC.
Whereas most of the speaking heads on the market would really like you to consider that inflation is slowing down, all I can see are issues creating that can solely serve to make the issues we’re experiencing considerably worse. Consider it or not, we could also be within the eye of the inflation hurricane.