"C.P.I. Disaster!"; "It Keeps Getting Worse"

Chuck Barone, 7/13/22, "C.P.I. Disaster!"

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"It Keeps Getting Worse"

by Brian Maher

"CNBC gives today’s headline news: Shoppers paid sharply higher prices for a variety of goods in June as inflation kept its hold on a slowing U.S. economy, the Bureau of Labor Statistics reported Wednesday. The consumer price index, a broad measure of everyday goods and services related to the cost of living, soared 9.1% from a year ago, above the 8.8% Dow Jones estimate. That marked the fastest pace for inflation going back to November 1981. Yes, the weisenheimers botched again, and to the downside, again.

We cling nonetheless to our belief - despite all reason, despite all evidence - that on some distant tomorrow they will strike bull’s-eye. But to return to the topic under discussion…

Gasoline prices ballooned an alarming 11% last month - and nearly 60% year over year. Sky-shooting gasoline prices are ill economic omens. They portend recession. We learn further that eating costs increased 1% in June - and 10.4% since last June. Not since February 1981 have food prices sizzled at such an incandescent annual rate.

Yet the present inflation is scarcely limited to gasoline and food prices. Like an evil weed worming catastrophically through a garden, inflation spans the economy. Mr. Robert Frick, economist with Navy Federal Credit Union: "CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation. Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel."

Whenever confronted with official inflation data fabricated by government data-torturers - as today - we consult Mr. John Williams and his ShadowStats. Thus we learn: "If today’s inflation were gauged by 1990’s metrics, the rate is not 9.1%... but in excess of 13%. And if by 1980’s metrics, the present inflation rate approaches a fantastic 17.3%."

How do you like it? The Federal Reserve’s “Open Market” Committee gathers in two weeks’ time. Thus a question presents itself: Will today’s inflation-soaked report accelerate its operational tempo?

One James Knightley, ING’s chief international economist, believes it will: "U.S. inflation is above 9%, but it is the breadth of the price pressures that is really concerning for the Federal Reserve. With supply conditions showing little sign of improvement the onus is on the Fed to hit the brakes via higher rates to allow demand to better match supply conditions."

The market is with him. CME Group’s FedWatch gadget presently gives 78.6% odds of a 100-basis-point July hike. Yesterday those odds came in at 7.6%.

Conversely: Today’s odds of a 75-basis-point hike read 16.7% - plunging from 92.4% yesterday. Yet if inflation goes at 9.1% (let alone 17%), the Federal Reserve remains well “behind the curve.” Today’s federal funds rate hovers between 1.50% and 1.75%. Mr. Powell and mates cannot possibly elevate rates to inflation-crushing levels - for those are also economy-crushing levels - and market-crushing levels. In brief… inflation has them by the ear.

Yet the dollar bounces along at 20-year heights. A formidable dollar purchases more goods than a straggling dollar. This dollar likewise equates to depressed commodity prices - foodstuffs and energy prices among them - and thank the Lord for it. “How bad would inflation be if the dollar was weak?” wonders our colleague Dave Gonigam of The 5 Min. Forecast. We wonder as well. We hazard the answer would raise our hair and freeze our blood.

We prefer to hold a muscular dollar than a runt dollar. But can the dollar grow overly mighty? Jim Rickards: "[A strong dollar] makes imports less expensive, which has a deflationary impact on the U.S. domestic economy…"

A strong dollar also hurts U.S. exports from major companies such as Boeing and GE. That hurts U.S. competitiveness and U.S. jobs. Finally, a strong dollar hurts corporate profits of U.S. global companies because their overseas profits are translated back into fewer U.S. dollars. This is a headwind to U.S. stock market performance.

And so we have a clashing of warring forces - inflation from one side - deflation from the other. Inflation enjoys a present advantage. But will a deflationary counteroffensive reverse inflation’s gains? And will today’s inflation yield abruptly to deflation?"

- dailyreckoning.com