August Inflation Shocks Expectations

The Fed’s Next Move [The Daily Reckoning] September 13, 2022 [WEBSITE]( | [UNSUBSCRIBE]( August Inflation Shocks Expectations - Another bleak inflation report… - A 100-basis point rate increase next week?… - Tightening upon tightening… [External Advertisment] [America’s “Permanent Recession” Is Here]( Life in America is not as it seems… And thanks to recent unprecedented decisions by a strange force of unelected officials… Americans may now experience a level of financial insecurity and suffocation of freedoms bigger than the crisis of 2000…2008… and 2020 - COMBINED. Months from now we may look back to – this moment – as the end of the middle class. Stephen Roach, a former chairman at Morgan Stanley, says: “U.S. living standards are about to be squeezed as never before.” Newsweek says: “[This] Will Be The End of American Freedom.” And HuffPost says: “[This] Is Making The Rich Richer, and Leaving You Behind.” But a new “boots on the ground” investigation reveals Americans will be forced to make a drastic decision… Become one of the ‘new poor’ in America… Or the ‘new rich’. While everyone else could end up in “Permanent Recession”. [Click Here To Get The Details]( Annapolis, Maryland September 13, 2022 [Brian Maher] BRIAN MAHER Dear Reader , “U.S. Consumer Prices Blow Away Expectations, Rise For 27th Straight Month”... “The Hottest U.S. Inflation in 40 Years Shows Little Sign of Cooling Off”... "Stocks Tank After August Inflation Data”... There is but a sample of today’s fevered headlines. The August Consumer Price Index (CPI) came issuing this morning. It revealed that consumer prices increased 0.1% since July. We might inform you that 47 of 50 polled economists “missed” — and to the downside. Yet we are in magnanimous spirits today. And so we will not. They nonetheless forecast a 0.1% price fall from July… and got the 0.1% price rise instead. Rather than the 8% year-over-year inflation they projected, August year-over-year inflation came in at 8.3% Meantime, core CPI is the Federal Reserve's inflation metric of choice. It rinses out food and energy prices. Today’s report reveals that core CPI galloped 0.6% in August. The wiseacres forecast a mere 0.4% jog past July’s rate. But Gas Prices Are Down! The foregoing presents an apparent conundrum: Energy prices push inflation up. Yet gasoline prices are in swift retreat — are they not? It is true, the data reveal they are. CPI’s energy component slipped 5% from July. That represents the largest backing-up since April 2020, when lockdowns entered force. The gasoline index, most notably and conspicuously, plunged 10.6% in August. What then explains August’s inflationary gurgles? What resolves the conundrum? Zero Hedge: The big shock was the food index which increased 11.4% over the last year, the largest 12-month increase since the period ending May 1979, while the food at home index rose 13.5% the largest 12-month increase since the period ending March 1979. These are the rising food prices the Federal Reserve looks away from… incidentally. You of course cannot look away from them. Your eyes leap from their sockets each time you sight the bill, gobsmacked and astonished. In all, 70% of the CPI bundle registered an August increase exceeding 4%. [Forget A Bitcoin Halving… What’s Happening On Thursday Could Be Even Bigger!]( [Click here for more...]( Any time a Bitcoin halving takes place, investors have had the chance to make huge gains 100% of the time. 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Adds Mr. Mark Zandi, chief economist with Moody’s Analytics: The core inflation numbers were hot across the board. The breadth of the strong price increases, from new vehicles to medical care services to rent growth, everything was up strongly. That was the most disconcerting aspect of the report. Meantime, CNBC warns that today’s report challenges “the inflation narrative”: For the better part of a year, the inflation narrative among many economists and policymakers was that it was essentially a food and fuel problem. Once supply chains eased and gas prices abated, the thinking went, that would help lower food costs and in turn ease price pressures across the economy. August’s consumer price index numbers, however, tested that narrative severely, with broadening increases indicating now that inflation could be more persistent and entrenched than previously thought. Just so. How do you like it? Falling Wages for 17 Consecutive Months Are you keeping up? Alas you are not. Real wages declined for the 17th consecutive month in August. That is, your wilting paycheck has fetched you less and less for the 17th consecutive month. Thus inflation is a supremely skillful pickpocket. It is justly and aptly named the invisible thief. And it presently has you by the ear. On such days as these we often consult Mr. John Williams’ ShadowStats site. That is because this fellow scatters the statistical fogs — the statistical fogs government throws up to conceal true inflation. Mr. Williams reveals that the true inflation rate far, far exceeds the official rate. Yet today our courage would not answer. We feared a true accounting would fluster us, wobble us and diminish our already diminished spirits. And so we stayed away. Yet perhaps you are of an optimistic turn of mind. You are a glass half-full man and a silver lining-seeker. Here then is your half-full water glass and your silver edging: The costs of airline tickets, coffee — and fruit — declined last month. Yet there was no joy on Wall Street today… [Urgent Note From Jim Rickards: “You’re Running Out Of Time!”]( [Click here for more...]( Your exclusive “Pro level” upgrade to Strategic Intelligence is ready to be claimed. This is your chance to claim 3 exciting new benefits along with a whole new level of service. Hurry… you only have until the timer hits 0 to act. [Claim My Upgrade]( A Vicious Thumping The stock market took a vicious whaling, harpooned heavily by the report. The Dow Jones plummeted a harrowing 1,276 points on the day. The S&P 500 took a 177-point trouncing and the poor Nasdaq Composite hemorrhaged 632 points — a 5.16% defeat. Gold lost $28 — precisely — while Bitcoin lost $2,091, at writing at least. Today’s report gave Wall Street a good reminder that it can stow all hopes of Federal Reserve clemency near term. Principal Global Investors chief global strategist Seema Shah: Today’s inflation data cements a third consecutive 0.75% increase in the fed funds rate next week… core CPI is once again on the rise, confirming the very sticky nature of the U.S. inflation problem. Until the Fed can tame that beast, there is simply no room for a discussion on pivots or pauses. This Shah claims today’s inflation data “cements” a third consecutive 0.75% rate hike. Yet could the Federal Reserve resort to action bolder yet? Might it elevate rates a full percentage point next week — by a thumping 1%? The market presently gives 32% odds of it. Yesterday it gave 0% odds. Tightening Upon Tightening Meantime, the odds of a 0.75% November hike leaped to 60% and the odds of a 1% December hike near 50%. Thus we discover that the federal funds rate may exceed 4% by year’s end. When we factor for the quantitative tightening presently underway, the Federal Reserve may squeeze markets plenty hard. Its quantitative easing may hack away $1 trillion from the balance sheet this year. Estimates are that a $1 trillion carving equals one percentage point of rate hikes. The stock market — and the economy — may then confront a 5% effective rate before long. Neither can withstand a 5% rate… by our reckoning at least. Only one question remains: What is the breaking point? We do not know of course. No one truly does. Yet unless the gods are exceedingly and unfashionably kind, we will have our answer soon enough… Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: In Jim Rickards’ 2011 book Currency Wars, Jim warned that the U.S. was engaged in a special type of economic war. He said that these wars would: Degenerate into sequential bouts of inflation, recession, retaliation and actual violence as the scramble for resources leads to invasion and war. The historical precedents are sobering… Some version of the worst-case scenario is almost inevitable. Now with Putin invading Ukraine, rising tensions with China, inflation, recession, supply chain issues and the potential for greater violence breaking out all over the world… Jim’s worst fears are coming true. [That’s why he recorded this short video message.]( Jim wants to help you prepare for what he fears is coming next. Because if history is any indicator, there could be real trouble ahead. [Click here to view Jim’s urgent video message.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Brian Maher] [Brian Maher]( is the Daily Reckoning's Managing Editor. Before signing on to Agora Financial, he was an independent researcher and writer who covered economics, politics and international affairs. His work has appeared in the Asia Times and other news outlets around the world. He holds a Master's degree in Defense & Strategic Studies. 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