Thinking About the Latest Inflation Update

Here are the headlines from the latest inflation report. The attachment from Brian Westbury covers the issue in greater detail. Here is what I would want to know if I was you…

  • When you hear people say, “Ya, but gasoline prices have retreated and they are not included so inflation numbers are actually much better.” – they are BS’ing.  Producer prices excluding food and energy rose 0.4% in June and are up 8.2% in the past year.
  • Energy prices rose 10.0% in June, while food prices increased 0.1%. 
  • In the past year, prices for goods are up 17.9%, while prices for services have risen 7.7%.
  • Readings from both inflation gauges came in above consensus expectations, and the futures markets are now pricing in that the Federal Reserve is going to raise rates by 100 basis points (bps) when they meet later this month (the last raise was 75 basis points).
  • The Fed has little choice but to acknowledge that they
    • 1) have a flawed inflation model focused on the supply chain – rather than the far more important money supply – which has led them to significantly under appreciate the inflation pressures building in the economy and
    • 2) they remain behind the curve in remedying their prior mistakes.
    • 3) Core prices increases were led by a jump in costs for trade services (margins received by wholesalers).
    • 4) Pressures remain elevated further back in the supply chain, as prices for processed and unprocessed goods are up 22.2% and 58.0%, respectively, in the past year.
  • This is what happens when you boost the money supply by leaps and bounds faster than you can grow output.
  • The Fed needs to focus on controlling the money supply. 
  • In other news, initial unemployment claims suggest continued healthy job growth in July.

I want to encourage you to remember it’s my job to worry, watch, and plan on your behalf. Let’s talk as often as you want to. 

Standing by if I can be of assistance.