Scorching US Inflation Report Is Total Disaster
US consumer prices rose far more than expected in October, closely-watched data out Wednesday showed.
The headline gauge rose 0.9% MoM, much hotter than the 0.6% consensus expected and well above the highest estimate from nearly six-dozen economists. The range was 0.4% to 0.7%.
YoY, headline CPI rose a scorching 6.2%. The market was looking for 5.9%.
I wouldn't want to call it "scary," but suffice to say that for many market participants, that chart isn't recognizable as a depiction of cons
Numbers early next year are going to be comical/tragic especially without “base effect” to take the blame.
Here’s something interesting, the Global Alert and Disaster Co-ordination System, GADCS. http://dev.gdacs.org/default.aspx
Notice how many parts of the world are in a drought. Currently they are only in a “Green” drought. Somalia is in a “red” drought. Multiple parts of Africa and even South America are in yellow. Color signifies how long the drought has lasted.
The systems to monitor inflation have been conveniently underestimating inflation for a number of years (quality and quantity efficiencies for want of a better description ) . Looks like the chickens are home to roost.. Hopefully “transitory ” doesn’t become a by product of a substantial recession.
I do not even want to think about what it would mean for the world if more regions turned red on that map.
As an aside couldn’t help but notice how casually Treasury Sec. Yellen announces what the Fes will and will not allow to happen ?
I had a similar “hmmm…” reaction to Yellen’s comment. As wise and experienced as she certainly is, policy makers generally know that it’s unwise to state what will or won’t be allowed to happen when discussing economics that are changing as rapidly and aggressively as inflation is within the context of the weird one-off universe we presently live in.
She could literally wake up one morning in a few months and discover we’re announcing 70’s-style inflation data before she’s had her morning coffee, whether anyone at the Fed saw it coming or not, and well before they have any clue what they intend to actually do about it.
And the VIX is down modestly today….
This is not aFed issue. Raising rates will not solve the congestion in ports or the fact that Europe has over invested in renewables
Right, why even bother with a price stability mandate?
Yes it will if we get demand destruction
There is no such thing as “overinvesting” in renewables. In fact, Europe, the U.S., and everyone else needs to invest more, more quickly, than we have. This inflation spike is the result of a snapback from a violent reduction in demand driven by a once-in-a-lifetime pandemic and will sort itself out — sooner rather than later. So people are paying $3.25 for a gallon of gas. Big deal. I was paying that ten years ago. Oil inventories are rebounding from summer lows (as we head into the stay-at-home winter months in much of the North), and prices are moderating. Here’s another idea for the clueless: Stop buying gas-guzzling SUVs.
So my understanding is that demand for goods is high at least in part due to reduced spending on services. Will higher food and energy prices absorb some of the money that was previously going into services easing demand for goods? I know there are distributional issues with lower income people spending a larger percentage of their income on food and fuel but they probably were not fueling the increased demand for other goods.
H-Man, sure fire read on inflation. We know it is going up but how far? And we know when it goes up, it comes down. But when does it come down. It seems like going up prevails over going down for the time being. Bonds seem to be saying something else but rather than being a forward indicator they seem to be a laggard.
I still think this is transitory. Here are a few specific reasons why:
It is impossible to figure out the exact point in the logistics process that a US company takes ownership of inventory produced in China (this can vary); however, I do think that most US companies take ownership once product leaves the factory in China, but is still physically in China. This means that the inventory is reflected on the balance sheet of the US company, even though such inventory might be stuck in China, on a ship, in a US shipping yard waiting to clear customs or waiting for a transport truck. Therefore, they own the inventory, but can not sell it. When this resolves, there will be a bottleneck of inventory that needs to get sold, causing downward price pressures.
Companies such as Walmart, are attempting to put their own fleet together to bring products to their stores and US ports are setting up emergency storage sites for containers. This will get solved, just going to take time.
As a result, all shipping costs are going up, even for food and other items that are produced in the US and do not even go though a US port. So I think that food costs will also retreat along with imported items once shipping/logistics issues are resolved.
The information that I have looked at seems to indicate that shipping rates peaked in September, so these costs should start to decline- with downward pressure on prices.
The chip shortages may take longer to resolve, I don’t have as clear of an understanding of the details of that issue.
This has provided a once in a lifetime opportunity for the Fed to inflate away US debt in a plausible and acceptable manner. With so much money out there, looking for an investment home, more patience is being given to US equities than was warranted during pre-covid times.
Sure, the market doesn’t care to be philosophical, but inflation, and everything else, is transitory. The global bomb of climate change is already impacting our world and our markets. And it’s only going to get worse.
Though politicians will blame Joe Biden for inflation, and/or poor handling of it, the markets know that the pandemic interrupted product and commodity consumption and supply. Prices increased as a result, hopefully only until systems have a chance to re-level some time down the road, which one would normally expect.
But in addition to the pandemic, there are new variables that may affect economic balance. There’s a new Delta variant coming down the pike. And what impacts do climate changes hold for us in the coming months?
We’ll find out. But the playing field is changing.