September 13, 2022

Inflation still sucks, badly

The Federal Reserve is trying to fight inflation by raising interest rates aggressively.  It's helped, but it's clear they are going to have to do a whole lot more.

Trading Economics:

The annual inflation rate in the US eased for a second straight month to 8.3% in August of 2022, the lowest in 4 months, from 8.5% in July but above market forecasts of 8.1%. The energy index increased 23.8%, below 32.9% in July. Smaller increases were reported for gasoline costs (25.6% vs 44%) and fuel oil (68.8% vs 75.6%) while inflation sped up for natural gas (33% vs 30.5%) and electricity (15.8%, the highest since August 1981). On the other hand, inflation rose for food (11.4%, the most since 1979), shelter (6.2%, the most since 1984), and used cars and trucks (7.8%). Compared to the previous month, consumer prices were up 0.1%, following a flat reading in July and compared to forecasts of a 0.1% drop. Meanwhile, core CPI, which excludes volatile energy and food prices, increased 6.3% on a year, the most since March, and up markedly from 5.9% hit in both June and July.

Inflation is nowhere near done. And it's worse than these numbers show.   There's a wheat shortage going to hit this fall, there are supply chain issues, there are fuel issues despite Let's Go Brandon running around the world begging for oil after shutting it down in the U.S. wherever he could, and most importantly, there are serious money supply issues.

Specifically to the latter point, the Fed has flooded the world with American dollars (as have other central banks around the world with their own currencies), there is simply too much money in circulation which decreased the value of each individual dollar.  That's inflation and monetary policy is still the biggest culprit.

The Fed has no choice but to hike interest rates substantially and it is going to hurt a lot of people, HARD. Anyone owing money will end up paying substantially more in interest payments.  This is in addition to quantitative tightening, which is seemingly is not doing as aggressively.  

This supposedly 'transitory' inflation has a long shelf life still. And that means rate hikes, and that's why the Dow Jones is taking a beating today. People know that, and know it will hurt businesses.

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