Much hotter than expected CPI data for October stole the spotlight on Wednesday, but there was more bad news on the inflation front that received less attention. The annual Producer Price Index (PPI) increase in October tied September’s record, as rising producer prices continue to undercut the “transitory inflation” narrative.
The consumer price index was expected to come in hot yet again in October. It came in sizzling.
The actual CPI numbers for last month were even hotter than expected as “transitory” inflation remained well above 5% on an annual basis for the sixth straight month.
The CPI data for September came in hotter than expected at 0.4%. That pushed the yearly gain to 5.4%. But an honest CPI calculation would come in even hotter.
I am doing something different this month. In past reviews of the CPI, I typically take the BLS data and recalculate the values to get a more detailed number that is rounded to two decimal points instead of one. This methodology also allows me to show the impact of each component on the top-line number.
With CPI data once again coming in hotter than expected, it’s getting harder and harder for the mainstream to swallow the “transitory inflation” narrative.
And some people are starting to worry.
During an earnings call, JPMorgan Chase CEO Jamie Dimon expressed concerns about higher than expected and persistent inflation ahead.
September CPI came in above expectations. At this point, even the central bankers at the Federal Reserve are having a hard time sticking to the “transitory inflation” narrative.
In his podcast, Peter Schiff talked about the CPI report. He said it reveals that we’re entering an inflation super-cycle and perhaps the markets are starting to figure this out.
Peter called this the “government report card on inflation,” noting that it’s not particularly reliable because the government is grading itself.
The Fed has an inflation problem.
The CPI is running well above the mythical 2% target and there isn’t any sign that it will ease soon. To deal with this problem, the central bank should tighten its monetary policy. But that would create a whole new problem, given that it can’t tighten in this economic environment. So, what is a central banker to do?
Well, if the Fed can’t hit the target, how about just moving the target?
CPI data came in slightly cooler than expected for August, giving new energy to the “transitory” inflation narrative. But can we really trust these numbers? In this episode, Friday Gold Wrap host Mike Maharrey takes a deep dive into the CPI and considers this question. He also touches on the big gold sell-off Thursday sparked by surprisingly good retail sales numbers.
For months, Federal Reserve Chairman Jerome Powell has insisted that inflation is “transitory.” Instead of laying out a plan to taper quantitative easing, Powell used his Jackson Hole speech to double down on that narrative. Looking at the bigger picture, the US government has created a CPI calculation that intentionally understates rising prices.
This raises a question: why are the government and the Fed so desperate to hide price inflation?
The government CPI data for August came in slightly under expectations. Nevertheless, a 0.3% month-on-month increase in prices is significant. And a dig into the numbers reveals something wonky. The way the government calculates housing costs drastically understates rising prices and skews overall CPI to the downside.
For the first time in nine months, the government CPI data came in under expectations. Prices rose by 0.3% last month, just below the 0.4% projection. Year on year, the CPI was up 5.3%. Core inflation, stripping out more volatile food and energy (for those of you who don’t eat or use energy) was up 0.1%. Core inflation is up 4% on the year.
In his podcast, Peter Schiff took a deeper dive into the numbers and explained why this doesn’t prove inflation is “transitory.” He also drilled down to the root cause of rising prices – too much money chasing not enough stuff. Given the current monetary policy, that doesn’t appear set to change anytime soon.