Inflation is not done (part 2)

The September Consumer Price Index (CPI) came in today as expected by me; meaning higher than analysts' expectations.  It follows a similar patter to yesterday's Producer Price Index (PPI) September release:

Inflation is not done

 Via CNBC, this unsurprising (to many) bit of news:

Wholesale prices rose more than expected in September despite Federal Reserve efforts to control inflation, according to a report Wednesday from the Bureau of Labor Statistics.

The producer price index, a measure of prices that U.S. businesses get for the goods and services they produce, increased 0.4% for the month, compared with the Dow Jones estimate for a 0.2% gain.

That means more rate hikes are likely to come: 

Inflation has been the economy’s biggest issue over the past year as the cost of living is running near its highest level in more than 40 years.

The Fed has responded by raising rates five times this year for a total of 3 percentage points and is widely expected to implement a fourth consecutive 0.75 percentage point increase when it meets again in three weeks.

“Inflationary momentum has built up in the U.S. economy and will persist near-term, keeping the Fed hiking aggressively,” said Bill Adams, chief economist for Comerica Bank.

...Wednesday’s data shows the Fed still has work to do. Indeed, Cleveland Fed President Loretta Mester on Tuesday said “there has been no progress on inflation.” Following the PPI release, traders priced in an 81.3% chance of a three-quarter point hike, the same as a day ago.

Tomorrow the more broadly followed Consumer Price Index (CPI) for September gets released.  It tends to lag behind the PPP, so a decrease tomrrow still does not portend the end of inflation or aneasing of The Fed's aggressive rate hiking to combat inflation.  More pain to come. 

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.

Are you ready for more pain?

 The June 2022 Consumer Price Index surged again ("unexpectedly") to 9.1%. To many Keynesian economists and their Democratic party ilk, this was unexpected.  To those of us who understand loose monetary policy and loose fiscal policy, and even those who have common sense, this was no surprise.  A four decade high inflation rate: no surprise. The more leading indicator, of inflation, the Producer Price Index, rose even higher. According to teh BLS (Bureau of Labor Statistics);

The Producer Price Index for final demand increased 1.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.9 percent in May and 0.4 percent in April. (See table A.) On an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June, the largest increase since a record 11.6-percent jump in March 2022.

...Over half of the June increase in the index for final demand goods is attributable to gasoline prices, which jumped 18.5 percent. The indexes for diesel fuel, electric power, residential natural gas, motor vehicles and equipment, and processed young chickens also moved higher.

This is the result of an entirely preventable series of events.  Loose monetary policy since 2008 has created a massive bubble. This was compounded heavily by Democrat spending and also seriously exacerbated by Let's Go Brandon's effort to demonize and hamstring American oil and gas production.

What's worse, is if you look at the way inflation was calculated back in the 1980's, this is way, way worse than what's being reported as the worst since 1981.  This is the worst since 1947 (when it peaked at 19.7%) and soon potentially since 1920 (when it hit 23.7%).

This is not over.  Inflation will continue to rise, despite an expected 'aggressive' response from the Fed, raising interest rates by 100 bps. The Fed is responding slowly (too little) and too late. The Fed's interest rate hikes will have an effect but they will take time.  The previous rate hikes did nothing to stop the upward March of the inflation. That's because, just like the decisions that caused this, the reaction wiill take time to work it's way through the system.  On the plus side that means rising unemployement could take time to kick in. But be ready for more pain; shortages and on-going price hikes are going to continue for a while.

Inflation keeps coming

I keep talking about inflation, but only because it matters and it is slated to keep getting worse.  You want evidence?  You should want evidence.  Well here's some.  The most common measure of inflation is the Consumer Price Index (CPI).  The Bureau of Labor Statistics (BLS) which produces the CPI also produces the Producer Price Index (PPI) - the rate of inflation for producers rather than consumers.  It's the supply side of inflation.  

When the price for producers increases, what does that mean for consumers?  The PPI is a leading indicator with respect to the trailing CPI.  Eventually the producer inflation rate will work it's way through the supply chain to reach consumers.  If it costs them more to make, they will pass on the cost to the prices they charge. See here, and here for examples. That means that downstream from the PPI is the CPI.  

What do we see in the latest PPI?  Directly from the BLS:

Producer prices for goods rose 16.3 percent, while prices for services rose 8.1 percent.

Producer prices for foods rose 16.3 percent over the year ending April 2022, while prices for energy rose 40.0 percent. Prices for goods less foods and energy rose 10.1 percent.

Producer prices for trade services rose 15.4 percent over the year ending April 2022, while prices for transportation and warehousing services rose 22.6 percent. Prices for services less trade, transportation, and warehousing rose 3.2 percent.

For comparison, the latest CPI rate: 

From May 2021 to May 2022, the Consumer Price Index for All Urban Consumers increased 8.6 percent, the largest 12-month increase since the period ending December 1981.

If you drill down on the trends in the CPI, the leading cost increase was energy and it is continuing to rise unabated.  That impact has yet to work it's way through the PPI; producers are still consuming increasing energy costs which will have an impact on their future production costs, and therefore future CPI readings. It means food and other goods will continue to see an increase in prices for consumers. It's not over yet.

The way to mitigate this would have been to allow the Keystone pipeline to finish being built, increase the number of domestic refineries, continue with the expansion of domestic oil production to expand the production from the records created under president Trump.  Not only was that not done, previous progress was actually undone.  Expect  as a result, that energy prices will continue to rise for the foreseeable future.  Let's Go Brandon.  

As the PPI continues to rise, the CPI will continue to follow.

I can't keep up with the bad news

Once again I've fallen behind on posts due to personal circumstances. I hate when that happens.  I've missed out on a lot of important stories.  For example, the CPI index of inflation was up again for March, beyond forecasts, hitting a four decade high of 8.5%.  But if you look at Shadowstats, where they also keep track of inflation as it was calculated in 1980 (i.e. more realistically), it's above 16%.  At Jimmy Carter's worst inflation it peaked at just under 15% in April 1980.

Let's Go Brandon, which was once labeled transitory has now relabeled (how Orwellian) the inflation as the Putin Price Hike.  Wrongly of course.  But to be fair, what else is an incompetent supposed to do beside blameshift?

The Bureau of Labor Statistics is going to fudge it on inflation in 2022

Interesting: the Bureau of Labor Statistics has a couple of Notices on their Consumer Price Index page. One note indicates that "Starting in January 2022, weights for the Consumer Price Index will be calculated based on consumer expenditure data from 2019-2020. The BLS considered interventions, but decided to maintain normal procedures."   That's interesting. During the COVID lockdowns people bought a lot more toilet paper initially, but the most impactful change would be the reduction of fuel usage, particularly gasoline, as people were forced to stay at home, vastly reducing fuel expenditures.  This as fuel prices have started to skyrocket in 2021 and 2022. In other words, they are going to try to dampen or hide the inflation numbers they are going to share by treating it as a smaller factor in consumer spend, by using fuel expenditures during the height of COVID lockdowns as part of the calculation.  During COVID that share of spend most definitely shrunk, dramatically. That effect will take about two years to work it's way through the system, disappearing in a presidential election year.

Let's Go Brandon.

The other note states "Each year with the release of the January CPI, seasonal adjustment factors are recalculated to reflect price movements from the just-completed calendar year. This routine annual recalculation may result in revisions to seasonally adjusted indexes for the previous 5 years. Recalculated seasonally adjusted indexes as well as recalculated seasonal adjustment factors for the period January 2017 through December 2021 will be made available on Tuesday, February 8, 2022."

This one is a bit trickier because they have not yet posted any of the adjustments as of yet. What they do is take an item in a basket of consumer goods like say potatoes, and adjust it's cost impact based on the month of the year.  In January for example they might see it at 98.928 and in July at 103.920 but seasonally adjusted factors to smooth the months, it might be factored instead at 98.921 in January and 103.946 in July.  This sort of tweaking is done to smooth the rate towards a more annualized sort of number and make it less volatile.

That alone is not a problem.  The issue arises when they use it for politics.  There are so many items that factor into the total number that it is fairly easy to hide the fudging.  And keep in mind that this is something they typically do annually. It may amount to nothing.  It may even be a distraction from their other note.  But if some of the numbers are significantly different from what they used in 2021, it is a sign of malfeasance. The problem is that it will probably be  hard to find.   Stay tuned.

Consumer Price Index hit 5% in May

 Inflation is real, and it's not going away. Printing too much money always ends the same way.  ALWAYS.