Inflation Hits 30-Year High - "Transitory"?

Inflation Hits 30-Year High

The U.S. consumer price index (CPI) jumped 6.2% in October, leading to the biggest inflation surge in more than 30 years. The core CPI (removing the impact of food and energy) mirrored these numbers, increasing 4.6% to another 30-year high. Either way, you slice these CPI numbers, these increases are screaming decades' high inflation. The sky-rocketing inflation numbers are negating wage increases that workers have been receiving. These data continue to be at odds with policymakers maintaining that the current price pressures are transitory and related to Covid pandemic-specific issues. Albeit they have admitted that inflation has been more persistent than they expected, they see conditions returning to normal over the next year or so.

Escalating inflation could cause the Fed to tighten policy more quickly than it has signaled. The central bank has indicated that it will within the next few weeks start reducing the amount of bonds it buys each month, though officials have indicated that interest rate hikes are still off in the future. These rising inflation expectations and the realization of these inflationary pressures could cause the Federal Reserve to change policy course sooner rather than later. It's going to be a tug-a-war between inflation, employment, Washington wrangling, and the delta variant backdrop. CPI reports will become more significant as these readings are used to identify periods of inflation. The recent CPI readings are resulting in a much stronger influence on the Federal Reserve's monetary policies hence the recent taper guidance.

Unsustainable Inflation

The CPI basket of goods is increasing at unsustainable rates. Fuel oil prices soared 12.3% in October, culminating in a 59% increase over the past year. Energy prices overall rose 4.8% in October and are up 30% for over the past 12-month period. Used vehicle prices continued rising 2.5% on the month and 26% for the year. New vehicle prices were also up 1.4% and 9.8%, respectively. Food prices also showed an uptick of 0.9% and 5.3% respectively. Within the food category, meat, poultry, fish, and eggs collectively rose 1.7% for the month and 11.9% year-over-year. The Federal Reserve will need to heed these real inflation numbers before it wreaks havoc on the consumer and businesses alike. Continue reading "Inflation Hits 30-Year High - "Transitory"?"