Here's the REAL Inflation Story

I have to admit: About halfway through last month, I was sitting in my car waiting for gas at the local grocery store and I had a gut-wrenching feeling.

My prediction about inflation peaking in April at an 8.3% annual rate might be wrong.

Dead wrong.

So as I sat their waiting for my turn, staring at gas close to $5 a gallon, I had to face the facts that energy costs are simply not moderating as quickly as I had hoped. And without having to do a deep dive right there into the data, I knew that that these stubborn gas prices were enough to blow my hopes of inflation moderating in May.

Fast forward a couple of weeks to just a few days ago when the latest inflation numbers hit the street. Fact is I don’t have to tell you that my mid-May revelation about inflation turned out to be true.

Inflation is on a Tear

During May inflation rose at a mind-boggling 8.6% annual rate. That marks the fastest pace of rising prices since December 1981, over four decades ago. See for yourself:

Consumer Price Index - All Categories

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As you can see from this chart of annual changes in consumer prices, the story of high inflation continued unabated in May. And across the board, every category of prices showed increases: Food was up a 10% annual rate in May, energy was up 35%, and all types of gasoline rose a staggering 49%.

49% rise in gas prices! Whew!

Now, if you strip out the more volatile food and energy prices and drill down into the so-called “core” inflation rate, the story isn’t much better: Core inflation rose at a 6% annual rate in May.

Consumer Price Index - Core

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When core inflation rises, it’s a clear indicator that the rise in prices in broad and robust. The above chart clearly shows that that holds true in May.

But as I drilled even deeper into this data, I didn’t think that was the whole story. So, I decided to get into the nitty gritty behind these numbers and crunch some of my own analytics from the Bureau of Labor Statistics (BLS) raw data. (The Bureau of Labor Statistics is one of the two major sources of inflation data. The other is the Personal Consumption Expenditures index from the Bureau of Economic Analysis). This is what I came up with…

Consumer Price Index - 12 Month Percentage Change

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This chart shows the major price categories tracked by the BLS and what’s happened with their pricing activity since the beginning of the year. Think of it as the bigger brother to the prior off-the-shelf chart from BLS.

As you can see, the annual changes in every price category are at worrisome levels. And those annual increases have been in the works for months.

So, while the latest inflation numbers are troubling, fact is they are only the latest installment in a trend that’s been sticking around way too long. And that makes these inflation numbers a trend, another reason for concern.

What bar stands out for you from the above chart? Without a doubt, the dubious winner in higher prices since the beginning of the year is the green bar. And as you might guess that bar represents the annual increase in gasoline prices.

So, while the fact that gas shot up 49% in May compared to a year ago is bad enough, the above chart shows that gas has been clocking annual increases in the 40% area throughout 2022.

More Fed Handwringing Coming

No doubt about it, inflation is on a tear. And since the most recent numbers are showing that top line inflation shows little signs of slowing the Fed is likely to do a lot of handwringing.

In addition, with little doubt that analysts at the Fed, the Whitehouse, and the Bureau of Labor Statistics are doing the same analytics on the raw data that I did, they’re going to see that inflation is chronic across all pricing categories.

What does that mean? It means that the Fed is likely to be even more aggressive with raising interest rates in the future. They’re going to do pretty much anything in their power to try to extract liquidity from the market so people and businesses cool their spending and bring prices down. And if the stock market takes a hit in the process, well then so be it.

But don’t forget: While higher interest rates do work, they don’t function in isolation. The massive increase in gas prices is tied to the increase in the price of oil which is tied to the war in Ukraine, among other factors. So, until that conflict abates and oil prices begin to moderate, we’re not likely to see a ton of improvement in gas prices.

The super-tight labor market – which is a good thing for wages and workers – also tends to put pressure underneath prices. So, with not enough workers right now to fill job vacancies – and unemployment in the multi-decade low range – labor prices themselves are pushing prices higher.

What to do? For investors with holdings in just above every inflation sensitive asset – including crypto, stocks, bonds, and real estate - the best course of action is to continue to monitor what the Fed does and only add to positions that you feel are the most inflation resilient. Then just sit back and play the waiting game. And don’t forget: There’s no shame in being on the sidelines while these inflation forces continue to work themselves out of the economy.

Stay safe,
Wayne Burritt
INO.com Contributor

Disclosure: This contributor may own cryptocurrencies, stocks, or other assets mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Stocks And Bitcoin Holding Up

In last week’s installment, I told you about how we finally got a solid weekly up bar across every major stock index. In fact, I went into detail about the 6% plus bullish action for the Dow, the S&P 500, the Nasdaq, and even the broad market Russell 2000.

In addition, across the board, they all reversed multi-week down bars. And the Dow’s reversal was the most longed-for of all four indexes: It snapped an eight-week collection of weekly down bars.

All in all, the action was a welcome sigh of relief. So, what happened after that? Did we get much follow-through last week?

While we didn’t get another weekly up bar in all four indexes, all four did manage to book higher lows than the prior week.

Is that a good thing? You bet. It means that despite selling, prices held up. It also means that sellers didn’t have to resort to continually lower lows to attract buyers: Buyers were finally willing to pay up for shares. And I don’t have to tell you that change in sentiment was a huge improvement over the constant bearish price action over the last two months.

Are we out of the woods yet? Not by a long shot. In fact, as I mentioned last week, the recent positive action in all four stock markets could just be a temporary bull market rally.

It might also develop into what’s called a “dead cat bounce.” Here’s what I mean: Continue reading "Stocks And Bitcoin Holding Up"

Here's Why Stocks Rallied Last Week

I don't know about you, but right now, I'm breathing a little sigh of relief.

And with good reason. Finally last week, we got some good news out of stock market action. And pretty much across the board, the news was positive. Here’s what I mean:

Stock

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As you can see from this set of multiple weekly charts, stocks booked some decent action last week. In fact, the Dow was up 6.2% for the week. Meanwhile, the S&P 500, a good proxy for the broader stock market, was up 6.6%. Also, last week, the Nasdaq was up 6.8%, and the Russell 2000, a good indicator of what all stocks are doing, was up 6.5%.

You have to admit that's broad positive action across all equity asset classes. And it's welcome news considering what the markets have been up to over the past two months. Continue reading "Here's Why Stocks Rallied Last Week"

What All The Recession Talk Really Means

If you’ve been following along here over the past year, I won’t have to remind you that I have no problem telling it just like it is. And that includes the good news, and the bad news, about Bitcoin (BTC), cryptocurrencies in general, stocks, and the economy. You name it, and I try to be upfront and transparent.

In fact, in last week’s post, I gave you the grisly details behind the sell-off in just about every asset class. I showed you how much every major stock index was down for the year in gory detail. I then showed you how Bitcoin was a member of that dubious club.

I also got under the hood of what I consider to be the biggest factor right now, which is hammering stocks and Bitcoin: Inflation.

The fact is inflation is at nosebleed levels, and it’s got just about everyone in a tizzy. And with good reason: Inflation eats away at incomes and makes products and services super-expensive. And since inflation now stands at multiple decade highs, you ignore it only at your own peril.

But as bad as inflation is, I have to remind you that down deep, what really makes investors nervous is not inflation itself but the tool of choice that gets used to fight it: Higher interest rates. Continue reading "What All The Recession Talk Really Means"

Here's Why Stocks And Bitcoin Are Down

First off, I don’t have to tell you that if you've invested in the stock market, the last couple of months has been downright terrible.

In fact, since the beginning of the year, major stock indexes of every ilk are down. Take a look:

Stocks and Bitcoin

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As you can see from this chart, just about everywhere you turn, stocks are getting hammered. Since the beginning of the year, the S&P 500, a good proxy for the broader stock market, is down 16%, the Dow 30 is down 11%, and the tech-heavy NASDAQ is down a whopping 26%. No matter how you slice it, that’s awful. Continue reading "Here's Why Stocks And Bitcoin Are Down"