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Fed’s Lowest Lowball Inflation Measure Spikes to Worst-Hottest 31-Year High. Powell Groans and Mutters

November 27, 2021

Fed’s Lowest Lowball Inflation Measure Spikes to Worst-Hottest 31-Year High. Powell Groans and Mutters

But the Fed has now backed off its ridiculous claims and is taking inflation more seriously.

The lowest lowball inflation measure that the US government produces, “core PCE,” which excludes the now soaring food and energy prices and understates inflation by the most, is used by the Fed for its inflation target: a symmetrical 2% “core PCE.” And this core PCE in October, released today by the Bureau of Economic Analysis, spiked by 4.1%, more than twice the Fed’s inflation target, and the worst-hottest inflation reading since January 1991:

It’s not temporary, Fed Chair Jerome Powell groaned and muttered this morning upon seeing this inflation monster blow out, following his $4.5 trillion in money-printing in 21 months. Here he is, freshly re-nominated for another four years, viewing the problem of his own making that he will now have to deal with, by cartoonist Marco Ricolli for WOLF STREET:

The overall PCE inflation index that includes food and energy, the second-lowest lowball inflation measure the US government produces, spiked by 5.0% in October, the worst-hottest since November 1990:

There is hardly anyone left on Wall Street with professional experience in this kind of inflation.

And the Fed still has the foot on the gas, but just slightly less so, planning to print $105 billion from mid-November through mid-December to repress long-term rates, and it’s still repressing short-term rates to near-zero – blowing at nearly full speed through every red light at every intersection.

On a month-to-month basis, the overall PCE increased by 0.43% in October from September, the worst-hottest increase since May. This amounts to an annualized pace of 5.2% (12 x 0.43%).

If you think that a car will slow down on its own somehow when you floor the accelerator, you’re tragically mistaken, as the history of automotive accidents shows.

…click on the above link to read the rest of the article…

Shipping Container Price Surge Will Result in Increased Prices on Consumer Goods

November 25, 2021

Shipping Container Price Surge Will Result in Increased Prices on Consumer Goods

The United Nations Conference on Trade and Development (UNCTAD) announced that we should expect consumer prices to rise 1.5% on average over the next year due to the global shipping crisis. Inflation, fuel increases, and labor shortages are among the many factors that have caused shipping costs to spike. “UNCTAD’s analysis shows that the current surge in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023,” the UN reported last week.

This will impact consumers throughout the world. The US could see a rise of 1.2%, according to the UN, while China may see a 1.4% increase. Less developed countries could see costs skyrocket by 7.5%. According to CNBC, as of late October, over 600 shipping vessels were parked outside of ports worldwide as they are unable to offload. The UNCTAD expects prices on electronics to spike 11.4%, furniture and textiles by 10.2%, rubber and plastic by 9.4%, and basic electrical equipment by 7.5%. Even pharmaceutical products are expected to increase by 7.5%. There are no signs of this crisis improving anytime soon.

Wheat soars to 9-year peak on supply concerns, strong demand

November 23, 2021

Wheat soars to 9-year peak on supply concerns, strong demand

CHICAGO, Nov 22 (Reuters) – U.S. wheat futures rallied to their highest in nearly nine years on Monday as ill-timed rains in Australia and rising Russian wheat prices stoked concerns about tightening supplies among the world’s top exporters.

Corn and soybeans followed wheat higher, with additional support from a waning U.S. harvest and strong domestic demand from ethanol makers and soy processors.

“The demand continues to equal or outstrip the supply in the short term,” said Don Roose, president of U.S. Commodities.

“The wheat market’s leading the charge. It was hit with weather that is too wet in Australia and a little too dry in the U.S. Plains, shipping issues in southwest Canada and issues around export taxes in Russia,” Roose said.

Chicago Board of Trade March soft red winter wheat was up 23-1/4 cents at $8.57-1/2 a bushel after peaking at $8.59-1/2, the highest for a most-active contract since December 2012. All futures months hit new contract highs.

K.C. hard red winter wheat futures also posted across-the-board contract highs, with the March contract ending 28 cents higher at $8.66-1/2 a bushel.

Wheat prices in Russia rose for a fifth straight week last week on strong demand. Shipments from the world’s largest exporter are down 34% this season due to a smaller crop and rising export taxes.

Heavy rains, meanwhile stalled harvesting in Australia and threatened crop quality, while flooding in western Canada has disrupted exports when global demand for wheat has risen.

Robust domestic demand for corn and soybeans amid strong margins at ethanol plants and soy crush facilities underpinned futures prices.

CBOT December corn gained 6 cents to $5.76-3/4 a bushel, while January soybeans added 11 cents to settle at $12.74-1/4 a bushel.

The Futility of Central Bank Policy

November 22, 2021

THE FUTILITY OF CENTRAL BANK POLICY

It is only now becoming clear to the investing public that the purchasing power of their currencies is declining at an accelerating rate. There is no doubt that yesterday’s announcement that the US CPI rose by 6.2%, compared with the longstanding 2% target, came as a wake-up call to markets.

Along with the other major central banks, the Fed’s reaction is likely to be to double down on interest rate suppression to keep bond yields low and stock valuations intact. The alternative will lead to a major financial, economic and currency shock sooner rather than later.

This article introduces the reader to some of the basic fallacies behind state currencies. It explains the misconceptions policy planners have over interest rates, and how central banks have become contracyclical lenders, replacing commercial banking’s credit creation for non-financial activities.

In effect, narrow money is being used by the major central banks in a vain attempt to shore up government finances and economic activity. The consequences for currency debasement are likely to be more immediate and profound than cyclical bank credit expansion.

Introduction

It is becoming clear that there has been an unofficial agreement between the US Fed, Bank of England, the ECB and probably the Bank of Japan not to raise interest rates. It is confirmed by remarkably similar statements from the former three in recent days. When, as the cliché has it, they are all singing off the same hymn sheet, those of us not party to agreements between our monetary policy planners are right to suspect they are doubling down on a market rigging exercise encompassing all financial markets.

…click on the above link to read the rest of the article…

Dollar Purchasing Power Plunges. Inflation +6.2%. For Urban Wage Earners +6.9%, Highest in 40 years, Most Monstrously Overstimulated Economy Ever.

November 12, 2021

Dollar Purchasing Power Plunges. Inflation +6.2%. For Urban Wage Earners +6.9%, Highest in 40 years, Most Monstrously Overstimulated Economy Ever.

Fed still printing money and repressing “real” interest rates to negative 6%, new vehicle prices spike by most since 1975, housing CPI jumps, food & energy soar.

The broadest Consumer Price Index (CPI-U) spiked 0.9% in October from September, and by 6.2% from a year ago, the highest since November 1990 (6.3%) and since 1982, according to data released by the Bureau of Labor Statistics today.

The Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W) spiked by 6.9% in October year-over-year, the highest since June 1982, nearly 40 years ago:

This CPI-W is the index upon which the Social Security COLAs are based, which are determined by the average during the third quarter. The Q3 average of 5.9% set the COLA for 2022 at 5.9%, the highest COLA since 1982, and there was some jubilation among beneficiaries a month ago. But now inflation is blowing right past that COLA.

As Atlanta Fed President Raphael Bostic pointed out, “transitory has become a dirty word.” This massive inflation occurred while the Fed still had its foot fully on the accelerator – $120 billion a month in money printing and near-0% short-term interest rates, meaning “real” short-term rates are at negative 6.0%.

The Fed has been saying over and over again ad nauseam for seven months that inflation will slow down somehow on its own, even as the Fed had the foot fully on the accelerator, and every step along the way, the Fed has grossly underestimated the surge of inflation, and continues to do so. The Powell Fed has unleashed a monster.

Here is Fed Chair Jerome Powell’s reaction to this inflation monster blowout, as captured by cartoonist Marco Ricolli for WOLF STREET:

…click on the above link to read the rest of the article…

Two Big Myths About Why Energy Prices Are Rising

November 12, 2021

Two Big Myths About Why Energy Prices Are Rising

Photo: Bridget Bennett/Bloomberg via Getty Images

The global economic recovery is running low on fuel. Chinese factories have been flickering on and off as Beijing rations electricity. Britons have been parking in petrol lines as their nation’s pumps run dry. Americans have turned on their president as spiking gas prices eat their wage gains. And the entire northern hemisphere is sweating the cost of keeping warm this winter.

High energy prices have long been the bane of the post-2020 recovery. But as the days grow shorter and the nights get colder, their salience is steadily rising. In recent days, Democrats and Republicans alike have called on Joe Biden to take immediate action to reduce the cost of energy. The former implored the president to bring down gas prices by tapping the nation’s emergency oil reserves. The latter chastised Biden for personally driving up energy prices by blocking new oil and gas drilling on federal land.

Meanwhile, fossil-fuel lobbyists and eco-socialists alike are casting the energy crunch as a byproduct of the world’s (slow and uneven) green transition. In their account, investors have been spurning new oil and gas production out of fear of future regulations, while renewables have failed to scale up fast enough to compensate. For oil barons, this narrative functions as an argument against stringent carbon pricing. For Marxists, it offers hope for an impending crisis of capitalism, as the old energy system dies and the new one struggles to be born.

Global energy markets contain multitudes. The price of oil internalizes myriad forces, from the financial to the macroeconomic to the geopolitical to the meteorological. So, one can tell a wide range of true stories about the energy crisis of 2021…

…click on the above link to read the rest of the article…

Inflationary Storm Forces Unilever To Raise Prices Fastest In Seven Years

October 21, 2021

Inflationary Storm Forces Unilever To Raise Prices Fastest In Seven Years

Rising consumer prices are not going away. The latest example of this is from British multinational consumer goods company Unilever PLC who announced Thursday soaring commodity prices had forced it to raise prices the most in years.

The multinational consumer goods company that produces food, beverages, cleaning agents, and personal care products said it raised prices 4.1% in the third quarter, the fastest in seven years, pushing soaring material costs onto consumers, which compensated for a drop in shipments to Southeast Asia during COVID outbreaks.

Unilever CEO Alan Jope said inflationary pressures would linger for at least another 12 months:

“Our current view of the future is that peak inflation will be in the first half of 2022, and it will moderate as we move towards the second half,” Jope said in a Bloomberg Television interview.

“We continue to take pricing responsibly, and that’s in relation to the very high levels of inflation we’re seeing,” CFO Graeme Pitkethly told reporters. He said that inflation in the consumer goods industry is in the “high teens,” with Unilever mitigating some of the inflationary impacts due to its negotiating power.

Pitkethly warned inflation could surge even higher next year, and the company would have to deal with spot prices as its hedges expire. He said 20 billion euros in raw materials and packaging costs and 3 billion euros worth of logistical costs had been impacted inflation.

Rivals, such as Nestlé warned Wednesday that “inflation costs are rising faster than we can roll forward through pricing . . . The situation has not improved. If anything, we are seeing further downsides compared to what we told you in the summer.”

…click on the above link to read the rest of the article…

Core Consumer Prices Surge At Fastest Rate Since 1992

June 10, 2021

Core Consumer Prices Surge At Fastest Rate Since 1992

With the world’s eyes having moved on from China’s rip-roaring PPI (and post-data decision to unleash price controls), this morning’s CPI print has been heralded as the arbiter of “is it transitory or not” with some (BofA) even suggesting we are nearing a period of “transitory hyperinflation.” The answer for now is – inflation’s still accelerating as headline CPI soared 5.0% YoY (hotter than the +4.7% expected). That is the highest level of inflation since Aug 2008.

Source: Bloomberg

But it is core CPI that is the huge outlier, soaring 3.8% YoY – the hottest level of inflation since 1992…

Source: Bloomberg

Goods prices are up 6.5% YoY – the highest since 1982 – and services prices are also accelerating significantly.

Source: Bloomberg

Under the hood, many of the same indexes continued to increase, including used cars and trucks, household furnishings and operations, new vehicles, airline fares, and apparel. The index for medical care fell slightly, one of the few major component indexes to decline in May

The index for used cars and trucks continued to rise sharply, increasing 7.3 percent in May. This increase accounted for about one-third of the seasonally adjusted all items increase.

The household furnishings and operations index increased 1.3 percent in May, its largest monthly increase since January 1976.

The index for new vehicles rose 1.6 percent in May, its largest 1-month increase since October 2009. The index for airline fares continued to increase, rising 7.0 percent in May after increasing 10.2 percent the prior month. The apparel index also rose in May, increasing 1.2 percent.

The index for car and truck rentals continued to rise, increasing 12.1 percent after rising 16.2 percent the prior month (and more than doubled over the past 12 months, rising 109.8 percent).

Finally, rent/shelter inflation remains subdued

MoM: The shelter index rose 0.3 percent in May. The index for rent rose 0.2 percent and the index for owners’ equivalent rent increased 0.3 percent
YoY: The shelter index increased 2.2 percent over the last 12 months.

So, Transitory or not?

Wrong… Again

March 25, 2021

Wrong… Again

The Federal Reserve met last week and voted to keep interest rates unchanged. What a shock!

The Fed also gave an upbeat forecast of economic growth, predicting that the U.S. economy will grow 6.5% this year, its highest rate in nearly 40 years. Its December 2020 forecast projected 4.2% growth.

The Fed also expects that the economy could return to full employment next year and that inflation could hit 2.4% this year before declining again.

In effect, the central bank said they were willing to let the economy run “hot” and risk higher inflation in order to capture the benefits of stronger growth.

Zero rates are essentially a given as far as the eye can see. What about that growth forecast?

The Fed has one of the worst forecasting records of any financial institution in the world. My expectation is that growth is slowing now and will get worse as the year progresses.

I believe this will be especially true as the Biden administration policies of higher taxes, more regulation, and open borders that import cheap labor take effect.

Biden has also shut down new oil and gas exploration and wants to push a Green New Deal that will guarantee higher energy prices. Higher energy prices are a burden on the economy.

Little Cause for Optimism

Where’s the evidence that growth is slower than the Fed expects?

Inflation measures remain weak. The annual core consumer price inflation rate moved down from 1.7% in September 2020 to 1.3% in February 2021.

The overall consumer price inflation rate (including food and energy) rose modestly from 1.4% in September 2020 to 1.7% in February 2021.

On a year-over-year basis, the core personal consumption expenditures rate of increase (the Fed’s preferred index) moved from 1.4% in October 2020 to 1.5% in January 2021.

…click on the above link to read the rest of the article…

daily reckoning, james rickards, fed, us federal reserve, inflation, price inflation, cpi, consumer price inflation,

House Price Inflation in CPI is of Course Complete Baloney, but it Accounts for 1/4 of Total CPI

March 13, 2021

House Price Inflation in CPI is of Course Complete Baloney, but it Accounts for 1/4 of Total CPI

With actual house price inflation based on market data, overall CPI would have jumped by 3.7%. Lifting the cover on the deception to keep CPI low.

For most Americans, housing costs are the largest item in their budget, ranging from 30% to 60% of their total monthly spending. In its Consumer Price Index (CPI) for February, released yesterday, the Bureau of Labor Statistics reported that the costs of homeownership (which the BLS calls “Owner’s equivalent rent of residence”) have increased by just 2.0% from a year ago, and that rents (“rent of primary residence”) have increased by 2.0%. They’re the biggest items among the 211 items in the CPI basket and together account for about one-third of overall CPI. They play a huge role in CPI. So…

Rent inflation of 2.0% year-over-year on average across the US might be roughly on target, from what I can see in other rental data. But homeowner’s inflation of just 2.0%, given the skyrocketing home prices? Ludicrous. In its latest release, the Case-Shiller National Home Price index jumped by 10.4%.

This discrepancy between home price increases and the CPI for homeowners – which has for years contributed to understating the overall CPI – is depicted in the chart of the Case-Shiller National Home Price Index (red line) and the CPI for “owner’s equivalent rent of residence” (black line). I set the homeowners CPI at 100 for January 2000 to match the Case-Shiller index, which is set by default at 100 for January 2000. This allows you to see the progression of both indices on the same axis.

The thus corrected CPI increases by 3.7%.

The “owner’s equivalent rent of residence” accounts for 24.2% of CPI. If it had increased by 10.4%, in line with the Case-Shiller index, instead of 2.0%, the overall CPI would have increased by 2.03 percentage points more…

…click on the above link to read the rest of the article…

wolfstreet, wolf richter, cpi, consumer price inflation, house prices, inflation, statistical manipulation, statistics,

The Dollar’s Purchasing Power Drops 2.9% in May from Year Ago, Fastest Drop since Nov 2011

June 13, 2018

The Dollar’s Purchasing Power Drops 2.9% in May from Year Ago, Fastest Drop since Nov 2011

Even as “hedonic quality adjustments” perform miracles to repress surging new and used vehicle inflation.

Consumer price inflation, as measured by the Consumer Price Index, released this morning by the Bureau of Labor Statistics, jumped by 2.8% in May from a year ago, after having already jumped by 2.5% in April. It was the fastest year-over-year rise since February 2012:

Inflation is just a nice way of saying that the dollar is losing its purchasing power, and that income earned in dollars is buying less and less, an experience consumers go through when they buy stuff. The purchasing power of the dollar dropped 2.93% in May from a year ago, the fastest drop since November 2011. The chart below shows the index of the dollar’s swooning purchasing power:

The CPI without food and energy rose 2.24% from a year ago, after having already risen 2.14% in April.

These year-over-year percentage changes in the Consumer Price Index are slower than what consumers experience in terms of actual price increases. Here are two big examples of how this discrepancy is happening: prices of used vehicles and new vehicles.

The CPI for used cars and trucks fell 1.7% in May from a year ago (not seasonally adjusted), according to the BLS. This index has been falling much of the time during the last decade with exception of the “Cash for Clunkers” period and its consequences, which took a whole generation of often perfectly good older cars off the road, and thus actually raised prices on what was left (the spike in this chart from 2010-2012):

The chart below shows the actual index of used car- and truck-price inflation over the decades. Note that this CPI for used vehicles in May is at the same level as in 1994:

…click on the above link to read the rest of the article…

Food: What’s In Your Basket? How Fast Are Prices Rising?

January 12, 2018

Food: What’s In Your Basket? How Fast Are Prices Rising?

The BLS says the CPI rose 2.1% in December from a year ago. Food rose 1.6%. I called the BLS and filled in some numbers.

In CPI Up 0.1 Percent: How Much is the CPI Understated? I disputed the BLS’s year-over-year overall inflation figure of 2.1%, specifically citing housing and the cost of health insurance.

I found the reported food increase reasonable, others didn’t. Whether or not you find the food index believable depends on two things.

What you buy
How you shop

Reader AWC pointed out this BLS article from March of 2017: Prices for meats, poultry, fish, and eggs down 7 percent since August 2015 peak.

I downloaded the data and started plugging in numbers for December 2017. The index numbers did not match, so I called the BLS. The person directed me to data downloads which I also found on my own. I still could not match the downloaded numbers.

What happened is the data for the the preceding chart was indexed to 2007 but the main index is to 1982.

I asked the BLS agent for year-over-year increases of items and the percentages matched.

CPI Select Food Items

I calculated all but the last row from the March article after verifying percentages with the BLS. The last row was read to me over the phone.

I created the main graph from the above chart.

How Do You Shop?

Your percentages may vary substantially from the above chart.

Mine are cheaper because I buy items on sale and freeze them. Sale prices fluctuate less than non-sale prices.

Properly wrapped food will last a year or more.

…click on the above link to read the rest of the article…

Weekly Commentary: End of an Era

November 4, 2017

Weekly Commentary: End of an Era

Of the diverse strains of inflation, asset inflation is by far the most dangerous. A bout of consumer price inflation would be generally recognized as problematic and rectified through a tightening of monetary conditions. On the other hand, asset price inflation is both celebrated and venerated. There is simply no constituency calling for a tightening of conditions to ward off the deleterious effects of rising asset prices, Bubbles and attendant economic maladjustment. And as we’ve witnessed, the bigger the Bubble the more powerful the constituencies that rationalize, justify and promote Bubble excess.

About one year ago, I was expecting a securities markets sell-off in the event of an unexpected Donald Trump win. A Trump presidency would create disruption, upheaval and major uncertainties – political, geopolitical, economic and social. Instead of a fall, the markets experienced a short squeeze and unwind of hedges. Over-liquefied markets and a powerful inflationary bias throughout global securities markets won the day – and the winning runs unabated.

We’ve come a long way since 1992 and James Carville’s “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” New age central banking has pacified bond markets and eradicated the vigilantes. These days it’s the great equities bull market as all-powerful intimidator.

The President admitted his surprise in winning the election. I suspect he and his team were astounded by the post-election market rally. I’ve always held the view that prolonged bull markets foster a portentous concentration of power – not only in the financial markets but within the financial system more generally.

…click on the above link to read the rest of the article…

The Path to Inflation: “Helicopter Money”

June 5, 2017

The Path to Inflation: “Helicopter Money”

The general view in inflation is dead, essentially forever. Maybe. Maybe not.

We all know real-world inflation for big-ticket expenses is far above the official rate of around 2% annually.

Yet conventional economists are virtually unanimous that deflation is the danger and inflation is a “good thing” we need to spur so servicing existing debt becomes easier for debtors.

Due to the deflationary pressures of technology and stagnant wages for the bottom 90%, the consensus sees low inflation as far as the eye can see.

When the consensus is near-100% on one side of the boat, we can safely bet Reality will not conform to expectations. This leads to a question: what could cause official near-zero inflation to surprise the consensus and leap higher?

One possible answer is “helicopter money”: money created by central banks that is distributed directly to households via tax rebates, debt forgiveness, or Universal Basic Income (UBI).

For the past 17 years, central banks have funneled credit and liquidity into the banks at the top of the wealth-power pyramid. Very little of this new “wealth” has trickled down to the bottom 90% of households in the real economy who have seen their earnings stagnate and their costs rise.

Now that debt and essentials are absorbing much of the bottom 90%’s earnings, there’s little fuel left for additional debt-based consumption. This is why we see auto sales plummeting.

The only way the central banks/states can fuel more debt and spending is to drop “helicopter money” directly into the consumers’ checking accounts.

Once they do this, the “new money” goes directly into the real economy. This is quite different than the past 17 years of monetary stimulus that went mostly into assets owned by the wealthy.

There’s another driver of inflation: shortages of essential commodities. I define inflation very simply: a loss of purchasing power, which means we are paying more money for the exact same good or service.

…click on the above link to read the rest of the article…

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