The Inflation Freight Train Keeps on Rolling

The inflation freight train is still hurtling down the track at breakneck speed.

Everybody expected a big Consumer Price Index number for March. When it was all said and done, we got what was expected. And then some.

The consensus estimate was for an 8.4% year-on-year increase in the CPI. The actual number came in just above that at 8.5%. It was the highest CPI print since December 1981.

Month-on-month, prices rose by 1.2% between February and March. Spiking oil prices in the wake of Russia’s invasion of Ukraine drove that number up. But remember, the February CPI was up .0.8% month-on-month and that was before the invasion.

Stripping out more volatile food and energy prices, core CPI rose by 6.5% year on year. The 0.3% month-on-month jump in core CPI was below the 0.5% expectation, leading some analysts to conclude we could be at “peak inflation.” But a 0.3% rise in core CPI is still a big number. Annualized, that would come to a 3.6% increase for the year. And we saw core CPI fall to 0.3% last summer. At the time, the pundits claimed it was a sign that “transitory” inflation was cooling off.

Of course, it wasn’t.

And as bad as the numbers are, it’s actually worse than that. This CPI uses a government formula that understates the actual rise in prices. Based on the CPI formula used in the 1970s, CPI is approaching 17% — a historically high number.

After Russia invaded Ukraine, Peter Schiff predicted that Russia would become the new “excuse variant” for rising prices. Sure enough, in an attempt to get ahead of what everybody knew would be bad news, the Biden administration started blaming Russia for the big CPI on Monday before the data even came out. White House press secretary Jen Psaki said, “We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike.”

There’s no doubt “Putin’s price hikes” impacted the March CPI data. As expected, gasoline prices went through the roof, charting an 18.3% month-on-month increase. This was largely driven by the impact of the Russian invasion of Ukraine. But shelter costs were up 0.5% month-on-month. This has nothing to do with Putin. And housing costs are another factor systematically understated in the CPI calculation.

Peter Schiff raised an important question on Twitter: if inflation is Putin’s fault, why is core CPI up? And he followed up with a key point.

A 6.5% rise (in core CPI) is still more than triple the Fed’s 2% target and has nothing to do with Putin. With people spending more on food and energy, they should have less to spend on other goods, sending those prices lower. The Fed did this!”

When you hear people blaming Russia, it’s important to step back and look at the broader trend. March marked the seventh straight month of accelerating CPI. That has nothing to do with Russia.

And there is every reason to believe prices will continue to rise. While the mainstream blames, Russia, COVID, supply chains, and excessive demand for rising inflation, they completely ignore the most significant factor – actual inflation created by the Federal Reserve.

Remember, rising prices are not in and of themselves “inflation.” Inflation is an increase in the money supply. Rising prices are a symptom of inflation. Loose central bank monetary policy drives the money supply up. And despite a lot of talk about a Fed inflation fight, monetary policy remains historically loose today.

The last time CPI was this high (Decmeber 1981) interest rates were at 12%. That was down from a peak of 20% in May of that same year. Then-Fed Chairman Paul Volker waged a legitimate fight against inflation, pushing real interest rates above the CPI. Today, interest rates are set at 0.25% with a rigged CPI at 8.5%. and an actual CPI of 17%.  As Peter Schiff put it in a tweet, “With real rates negative 16.75% now, versus positive 6.5% then, inflation is here to stay.”

In other words, there doesn’t seem to be anything set to slow down this inflation freight train.