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Peter Schiff: When It Comes to Inflation, We’re Just Getting Started

Peter Schiff: When It Comes to Inflation, We’re Just Getting Started

The July Consumer Price Index (CPI) data came out this week. For the first time, the numbers were in line with expectations, leading many mainstream pundits to declare “transitory” inflation is already starting to cool down. Peter Schiff broke down the report in his podcast. He said inflation is far from cooling off. In fact, when it comes to rising prices, you haven’t seen anything yet.

July CPI rose 0.5% month-on-month. This was in line with expectations for the first time this year. Every other CPI report had come in hotter than expected.

The year-on-year CPI came in at 5.4% – a high number, but in line with expectations. Core CPI, stripping out more volatile food and energy, charted below estimates at 0.3%.

Adding up the monthly CPI increases gives us a 4.1% inflation rate through the first seven months of 2021. As Peter pointed out, that’s more than double the Fed’s target of “slightly above 2%,” and we’re barely over halfway through the year. If you annualized the first seven months, you get around 7.2% inflation for 2021.

Clearly, nobody can define that as ‘slightly above.’ It’s more than triple 2%. I mean, it’s getting close to quadruple.”

And as Peter points out, it would be a lot worse if we had an honest measure of price increases.

I think if we measured inflation today using the same CPI we used to measure inflation in the 1970s, this year could end up being a worse year than any single year during the 1970s.”

More disturbing, Peter said this is just the beginning.

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

Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise

Shrinkflation, Inflation’s Sneaky Cousin, Is on the Rise

Doritos

Inflation has been on the rise for the past year and in the last few months it has accelerated. In June 2021, inflation, measured by the Consumer Price Index (CPI), hit the highest level since 2008. By inflation, economists refer to the increase in the general level of prices, which means that prices on average are increasing. The Bureau of Labor and Statistics (BLS) has a basket of goods and services that it tracks and uses to create a measure of the CPI. While inflation is the topic of the day in the news media and everyday conversations, many have not heard about its sneaky cousin, shrinkflation.

The term shrinkflation, is credited to British economist Pippa Malmgren, and refers to the shrinking weight of the products while the price for the package remains the same. This is in effect another form of inflation, since the per unit price of goods increases when products shrink. However, shrinkflation is trickier, since most consumers do not notice it (see here for a few examples of shrinkflation). Shrinkflation is an ongoing process, but we are seeing more of it in the past year, and especially the first half of 2021, as businesses scramble to catch up with increasing costs of production. Shrinkflation is so widespread today that there is a dedicated Reddit page for it.

Many complain about businesses resorting to shrinkflation and regard it as a sneaky way to increase prices. Yet many of the critics do not realize that businesses have no choice but to increase prices. Anyone who is paying attention to prices in the first half of 2021 will know that it is not only the price of consumer goods that it is increasing but also the prices of producer goods

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

Grocery Prices Could Rise 10 to 14 Percent By October, Grocery Chain CEO Warns

Grocery Prices Could Rise 10 to 14 Percent By October, Grocery Chain CEO Warns

This warning offers a painful reminder of how price inflation hurts everyday Americans.

American families are already struggling amid mounting price inflation that’s eating away at their budgets, with higher costs for housing, vehicles, and more. Yet a top CEO is warning that the growing inflation problem facing Americans could get much worse in the coming months.

The latest June data already show price inflation at a 13-year high, with prices having risen 5.4 percent year-over-year. Proponents of the big-government policies driving much of this increase insist the uptick in prices is only temporary. But billionaire and grocery chain CEO John Catsimatidis just predicted that overall price inflation, for consumer goods generally, will hit a 6 percent annualized rate by October.

In an interview with Fox Business, the CEO warned that his industry is seeing skyrocketing costs on the supply chain side, and that businesses will have to raise prices for consumers as a result.

“Food prices are getting higher, and we expect even more increases by October,” Catsimatidis said. “You have to pass [those extra costs] on [to consumers] or you’re not doing your duty to God, your country, your employees, and your company.”

While we can’t know for certain, Catsimatidis said rising costs could mean an astounding 10 to 14 percent specific increase in grocery prices by October. That’s truly a shocking amount. But this warning offers more than insight into the grocery industry. It’s a painful reminder of how price inflation hurts everyday Americans.

When we hear terms like “Consumer Price Index” or “expansionary monetary policy,” the conversation surrounding inflation quickly becomes inaccessible for many people, whose eyes understandably glaze over amid discussion of the abstract-seeming phenomenon…

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

Highest Inflation in Thirty Years Vs. Denial, Hand-Waving and Excuses

Stepping on a Lego in bare feet hurts. Once you know the Lego is there, and it hurts when you step on it, you can’t ignore it. That Lego is right out in the open, after all.

High inflation feels very similar. At first it’s a shock, then it hurts, then you just can’t pretend it’s not there. Unlike a stray Lego brick, though, you can’t just tidy inflation away. (That’s the Fed’s job.)

Inflation robs you in the subtlest possible way. And once you know high inflation is there, and it bleeds your buying power month after month, it’s hard to downplay or ignore. At least for you and me.

But dismissing high inflation and hand-waving it away with vague excuses? That’s precisely what the Fed, the Treasury, the entire Biden administration and cheerleading “experts” appear to be doing.

Why? Because most Americans seem to be ignoring them.

“The headline CPI numbers have shock value, for sure”

This has been widely reported, but just so we’re on the same page:

Consumer prices increased 5.4% in June from a year earlier, the biggest monthly gain since August 2008.

That’s what Jamie Cox of Harris Financial Group meant when he told CNBC, “The headline CPI numbers have shock value, for sure.”

Yes indeed. This is the largest one-month jump since 2008. If you take the “lowest of the lowball” Core CPI measure, which ignores food and energy prices (because nobody really needs to eat, right?) the June annual inflation rate is only 4.5%, the biggest jump in 30 years.

The article called this rise “higher than expected.” That’s one way of putting it. Like saying a wreck that totals your car is “inconvenient.”

We shouldn’t worry, though! This is just transitory, just a blip of supply chains and post-pandemic pressures relaxing. Remember?

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

Weekly Commentary: Under Fire

Weekly Commentary: Under Fire

The week had an ominous feel. Ten-year Treasury yields dropped another seven bps to 1.29% – completely disregarding much stronger-than-expected reports on consumer and producer prices. German bund yields fell another six bps to a three-month low negative 0.35%. Equities were down for the week in Europe, but the notable equities weakness was posted by the broader U.S. market. The Midcaps dropped 3.3%, and the small cap Russell 2000 sank 5.1%. Risk aversion typically leaves its initial mark at the “Periphery.”
Treasury market notwithstanding, inflation has become a problem in more ways than one. Consumer Prices (CPI) jumped 0.9% in June, versus expectations of a 0.5% increase. Year-over-year CPI was up 5.4% (expectations 4.9%), the strongest jump since 2008. And for analysts with issues with year-over-year “base-effects”, consumer inflation was up 3.3% in only five months. Core CPI also gained 0.9% for the month, with a 4.5% y-o-y increase. Producer Prices rose a data series record 7.3% y-o-y. Import Prices jumped 1% for the month and 11.2% y-o-y. University of Michigan one-year Inflation Expectations rose to 4.8%, the high since the summer of 2008. Also, at 4.8%, the New York Fed’s survey of one-year inflation expectations jumped to the highest level in data back to 2013.

To this point, inflation has not been an issue for the markets. It has become a problem for millions of Americans. For the institution of the Federal Reserve, it’s a metastasizing malignancy.

I understand why each Fed official sticks tightly with the party line “inflation will be transitory.” They don’t want to rattle the markets with thoughts of a traditional tightening cycle. And I think I understand why they adopted their framework aiming for a period of above target inflation – and why they swore off responding to incipient inflationary pressures. Again, they sought to retain flexibility to remain highly accommodative monetary policy, ensuring financial conditions would remain exceptionally loose (and markets high).
…click on the above link to read the rest of the article…

Transitory Inflation Turning Into an Inflationary Spiral

Transitory Inflation Turning Into an Inflationary Spiral

Consumer prices have been rising precipitously this year. If you annualize the Consumer Price Index through the first five months of 2021, you get a CPI increase of over 6%. Federal Reserve Chairman Jerome Powell continues to push the narrative that inflation is transitory, but not everybody buys into this storyline. On the Wolf Street Report, Financial Analyst Wolf Richter said Powell’s temporary inflation is turning into an “inflation spiral.”

Richter said some measure of inflation will likely tick down in the months ahead, but to steal Powell’s term, the relief will be transitory and only serve to offer false hope before inflation starts rising again.

The first bout of inflation always looks temporary. But during those first bouts of inflation, that’s when the triggers of persistent inflation, namely the inflationary mindset and inflation expectations are being unleashed.”

The markets seem increasingly skeptical of Powell’s insistence that inflation is transitory. Last week, the IMF warned of a “sustained” inflation rise in the United States. Many people are starting to talk about the Fed tightening monetary policy sooner rather than later to fight rising prices and worry this could cause a slowdown in the economic recovery. But Peter Schiff says the markets are bracing for the wrong impact. The Fed won’t fight inflation because it can’t. There is no way to tighten monetary policy without collapsing the economy.

It’s not that inflation is going to turn out to be not transitory and therefore the Fed is going to fight it,” Schiff said. “It’s that inflation is not transitory and the Fed is not going to fight it. And because the Fed is not going to fight the non-transitory inflation, it’s actually going to end up getting much worse than people think.”

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

U.S. Inflation Is Highest in 13 Years as Prices Surge 5%

U.S. Inflation Is Highest in 13 Years as Prices Surge 5%

The rapid rise in consumer prices in May reflected a surge in demand and shortages of labor and materials

The U.S. economy’s rebound from the pandemic is driving the biggest surge in inflation in nearly 13 years, with consumer prices rising in May by 5% from a year ago.

The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992.

Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3% from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply in May.

A separate reading showed the U.S. labor market continued to heal from the pandemic, with initial claims for unemployment benefits falling to another pandemic low.

May’s jump in prices extends a trend that accelerated this spring amid widespread Covid-19 vaccinations, relaxed business restrictions, trillions of dollars in federal pandemic relief programs and ample household savings—all of which have stoked demand for Americans to spend and travel more.

Overall prices jumped at a 9.7% annualized rate over the three months ended in May. On a month-to-month basis, overall prices rose a seasonally adjusted 0.6% and core prices rose 0.7%.

The annual inflation measurements are being boosted by comparisons with figures from last year during pandemic-related lockdowns, when prices plummeted because of collapsing demand for many goods and services. This so-called base effect is expected to push up inflation readings significantly in May and June, dwindling into the fall.

Compared with two years ago, overall prices rose a more muted 2.5% in May.

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

Pay More, Get Less: Consumer Income & Spending Chewed Up by Red-Hot Inflation

Pay More, Get Less: Consumer Income & Spending Chewed Up by Red-Hot Inflation

Inflation ate my homework?

You saw this coming after today’s release of the Personal Consumption Expenditure inflation index. “Core PCE” inflation, which excludes food and energy – the lowest lowball inflation index the US offers and which the Fed uses to track its inflation target – spiked by 6.4% annualized for the past three months. In May alone it rose by 0.5% from April.

Consumers got some remaining stimmies and extra unemployment checks and other stimulus funds from the government in May, which still puffed up their income, but less than in prior months. Consumers then spent this income in a heroic manner. But inflation ate a chunk out of their spending in May, and adjusted for inflation, it fell.

Adjusted for inflation, “real” consumer income from all sources fell 2.4% in May from April, and was down 1.1% from May last year, according to the Bureau of Economic Analysis today. Not adjusted for inflation, consumer income fell 2.0%. Each of the three waves of stimmies triggered a glorious WTF spike in income. Those stimmies are now petering out, but consumers are still receiving other payments from the federal government, including special unemployment benefits:

How this bout of inflation, the highest since the early 1980s, is starting to add up month by month, inexorably, and cumulatively, is depicted in the chart below. It tracks personal income from all sources, adjusted for inflation (red line) and not adjusted for inflation (green line), both expressed as an index set at 100 for January 2019. Note the sharply widening gap between the two lines. That’s the effect of inflation. I’m going track it that way going forward:

Inflation ate my homework?

American consumers are still trying to spend heroic amounts of money as fast as they can – they just didn’t keep up with inflation.

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

Transitory Inflation Takes Hold of the Economy – How Long Will It Last?

Just a couple of weeks ago, Bloomberg reported that Federal Reserve Chairman Jerome Powell sold investors on the idea that rising inflation wasn’t going to last. Officially, as of May 2021, inflation had risen 5%, the highest since August 2008.

Here’s how we know investors bought it: while the CPI is running at 5%, the yield on the 10-year Treasury languishes around 1.5%. For comparison, back in 2008, the 10-year Treasury yield stayed above 3.5% from January through November (and even broke 4% on a few occasions).

Bond buyers do not want interest rates to rise. A 10-year bond yielding 1.5% looks pretty pitiful if interest rates rise to, say, 3.5% (like back in 2008). So clearly bond investors aren’t expecting interest rates to rise in response to this little blip of inflation.

Maybe you remember the specific term Powell used to describe a temporary period of excessive inflation?

“Transitory.”

Whew, that’s a relief! At least we won’t have to tolerate this way-over-target inflation situation forever.

Today’s inflation: how high is too high?

We know that real-world inflation is somewhere between 9-12%, depending on which Federal Reserve methodology is used to calculate it. Either way, it’s quite high.

That’s right, we can get a closer look at the realities of inflation using methods developed and employed by the Federal Reserve itself.

In the 1980s, the Fed was aware that Americans spent money to maintain their standard of living (in other words, your level of income, comforts and services like healthcare you purchase). Official inflation calculations took this into account.

Using the 1980s formula, you can see how today’s Fed “official inflation” stacks up on the chart below:

If you thought 5% inflation was bad, 13% is much worse.

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

How to Buffer the Fallout from America’s Third World Death Spiral

How to Buffer the Fallout from America’s Third World Death Spiral

“What the hell?!” – President Joe Biden, June 16, 2021

Out of Control

American workers are trying to make their way in an economy that’s rigged against them.  We made this claim many years ago.  Today, for fun and for free, we revisit this assertion…starting with the latest from those doing the rigging.

This week, after a two day meeting, the Federal Open Market Committee (FOMC) released their statement.  Nothing material changed.  The Fed will continue to hold the federal funds rate near zero.  The Fed will also continue to create at least $120 billion per month from thin air to buy Treasuries and mortgage-backed securities.

Bond yields spiked and the price of gold dropped because 13 Fed officials now plot dots that project two hikes to the federal funds rate in 2023.  Fed Chair Jay Powell also mentioned the Fed is “talking about talking about” bond tapering.  These technocrats likely know – though they won’t admit – they’ve already lost control.

Consumer price inflation is ‘officially’ rising at a 5 percent annualized rate.  However, the ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 13 percent.  This rate of inflation is remarkably destructive to household budgets.

‘Talking about talking about’ tapering and telegraphing federal funds rate increases some two years from now will do little to contain consumer price inflation.  The fact is, it has already veered out of control.  We expect gas prices to top $5 per gallon in California this summer.  Many Americans are not prepared for sustained, unrelenting price inflation.

Here’s the hard, back of the napkin math they are facing…

Sour Grapes

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

It Gets Ugly: Dollar’s Purchasing Power Plunged at Fastest Pace since 1982. It’s “Permanent” not “Temporary,” Won’t Bounce Back

It Gets Ugly: Dollar’s Purchasing Power Plunged at Fastest Pace since 1982. It’s “Permanent” not “Temporary,” Won’t Bounce Back

The Consumer Price Index jumped 0.6% in May, after having jumped 0.8% in April, and 0.6% in March – all three the steepest month-to-month jumps since 2009, according to the Bureau of Labor Statistics today. For the three months combined, CPI has jumped by 2.0%, or by an “annualized” pace of 8.1%. This current three-month pace of inflation as measured by CPI has nothing to do with the now infamous “Base Effect,” which I discussed in early April in preparation for these crazy times; the Base Effect applies only to year-over-year comparisons.

On a year-over-year basis, including the Base Effect, but also including the low readings last fall which reduce the 12-month rate, CPI rose 5.0%, the largest year-over year increase since 2008.

In terms of the politically incorrect way of calling consumer price inflation: The purchasing power of the consumer dollar – everything denominated in dollars for consumers, including their labor – has dropped by 0.8% in May, according to the BLS, and by 2.4% over the past three months, the biggest three-month plunge in purchasing power since 1982:

On an annualized basis, the three-month drop in purchasing power amounted to a drop of 9.5%, and this eliminates the Base Effect which only applies to year-over-year comparisons.

That plunge in purchasing power is “permanent” not “temporary.”

Yup, the current plunge in purchasing power is permanent. And the plunge in purchasing power in the future is also permanent.

The only thing that might make a small portion of it “temporary” is if there is a period of consumer price deflation, which has happened for only a few quarters in my entire life, for example in the last few months of 2008, which is indicated in the chart above. So I’m not getting my hopes up.

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

Core Consumer Prices Surge At Fastest Rate Since 1992

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?

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

The majestic inflation overshoot has arrived.

The Fed’s favorite inflation measure, generally the lowest inflation measure the US government provides — tracking a lot lower than even the Consumer Price Index which already understates actual inflation — and therefore our lowest lowball inflation measure, and therefore the Fed’s favorite inflation measure, was released this morning, and it was a doozie, despite being the most understated inflation measure the US has so far come up with.

The Personal Consumption Expenditures Price index without food and energy, the “core PCE” index, jumped by 0.7% in April from March, after having jumped by 0.4% in March from February, according to the Bureau of Economic Analysis today. Those two months combine into an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of the past two months, then the annual inflation would be 6.4% as measured by the lowest lowball measure the US has.

This was the highest two-months annualized rate since 1985. And it shows to what extent inflation has suddenly heated up in March and April.

Over the past three months – so April, March, and February – the annualized increase of core PCE inflation was 4.9%, the highest since 1990.

The annualized PCE index eliminates the legitimate issue of the “Base Effect” that is now getting trotted out to brush off the inflation data (I discussed the Base Effect in early April to prepare for what would be coming).

The Base Effect applies only to year-over-year comparisons. In March last year, the core PCE price index dipped by 0.1% from February, and in April it dipped by 0.4% from March. So comparing today’s PCE index to that dip in April (the lower “base”) would include the Base Effect.

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

 

The CPI Revisited And Its Failure To Reflect True Inflation

The CPI Revisited And Its Failure To Reflect True Inflation

The cost of living numbers prepared by the Bureau of Labor Statistics are highly misleading. Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This extended into the BLS re-weightings sales outlets such as discount or mass merchandisers with Main Street shops. Those promoting this change claimed it was simply another way to measure inflation and it still reflected the true cost of living.  

 
The fact is, politicians and those behind this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water as to just how much we are being impacted by inflation. The general argument used to promote this change was that changing relative costs of goods results in consumers substituting less-expensive goods for more expensive goods.
Allowing for a substitution of goods within the formerly “fixed-basket” supposedly allows the consumer flexibility in obtaining a “constant level of satisfaction.” This adjustment to the inflation measure was touted as more appropriate for the GDP concept in measuring shifting demand and weighting actual consumption. Other tricks were also used to give the illusion of less inflation. In cases where the quality of the product are deemed by the government to be “improved” prices in the CPI, calculations are now adjusted lower to offset the higher quality. Extending this idea the Baskin Commission Report, December 4, 1996, actually used steak and chicken for its substitution example.

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

Surging Inflation Might Be the Rumblings of an Economic Tsunami

Inflation in the U.S. is on the rise, may have started heating up last year, and is now on the cusp of spiraling out of control.Gasoline prices pushing $5 per gallon are concerning bad, and will strain family budgets across the country following on the heels of the COVID-19 pandemic.

The 400% increase in lumber prices isn’t helping either, and as Business Insider reports: “Certain food items, household products, appliances, cars, and homes are all seeing prices surge” thanks to supply chain issues.

So the economic situation is already pretty dicey.

But what if the situation is much worse?

What if the Fed has played such a good “shell game” with inflation that something bigger is actually brewing?

Former Treasury Secretary Larry Summers is worried because of how fast inflation is heating up:

“I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers said in an interview with David Westin on Bloomberg Television’s “Wall Street Week.” “That has to make us nervous going forward.” [emphasis added]

And this fast-rising inflation still seems to be flying under the Fed’s radar. Robert Wenzel didn’t mince any words, calling Chairman Jerome Powell’s Federal Reserve “clueless.”

Based on Powell’s previous track record, Wenzel’s comment might be reasonable. That Powell seemed to be “ignoring” parts of the entire story behind inflation last year further supports Wenzel’s argument, and adds uncertainty.

Inflation surging and the Fed failing to even acknowledge it, let alone live up to their inflation-control mandate? This is a recipe for a frightening situation. Bloomberg spotlighted one fact that raises at least one serious question:

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

Olduvai IV: Courage
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Olduvai II: Exodus
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