Since the spring, the investor and so-called “expert” classes have continually beclowned themselves, predicting that inflation has peaked, then sending markets into a boom and bust cycle with their delusion that the Federal Reserve will pivot away from its rate hike campaign. Top-line inflation had not peaked in April, when the White House was insisting it had, nor has core inflation peaked now, as experts have been promising. All the while, each time investors price in a Fed pivot, only for Fed Chairman Jerome Powell to prove their wishcasting futile, stocks resume their steep slide into bear market territory.
Three data points ought to provide the definitive proof that core inflation will not peak and that the Fed will not pivot until next year at the earliest. I am as confident in this prediction as I have been in all of my predictions this year that the “core inflation has peaked” and/or “the Fed will pivot back to 50 basis point hikes” narratives have been false, and every single time, I have been proven right.
ECONOMIC WOES DEFLATING BIDEN INCLUDE STOCK MARKET
First, let us assess the latest consumer price index print from the Bureau of Labor Statistics. Headline inflation is up 8.2% year-over-year, with core inflation at 6.6%, the highest in exactly four decades. Although the most egregious annual price increases are in the volatile categories of energy (up nearly 20%) and food (up 11.2%), which are excluded from the core CPI calculation (one of the Fed’s preferred inflation measures), too many of the core categories are trending in the wrong direction.
For starters, service prices (up 6.7% year-over-year), which are much stickier than goods prices, are accelerating, with the monthly price increase doubling from July to September of this year. Healthcare inflation is already at 6.5% annually, but it’s slated to skyrocket, with the Federal Reserve Bank of Dallas estimating that medical price inflation will double from this year to the next.
The second point of proof is the producer price index report released earlier this week. Given that wholesale prices run upstream of consumer costs, PPI inflation coming in at double the rate of “expert” expectations bodes poorly for future CPI prints. Furthermore, core PPI came in at 7.2% for the year ending last month.
The final set of tea leaves to emerge this week came in the form of the Fed minutes from last month’s meeting. True to the Fed’s continued declarations that they’re willing to risk a recession to kill the worst inflation since the Volcker era, the minutes demonstrated that the Fed continues to understand that circumstances dictate it has a singular, not dual, mandate. That is to kill inflation, not keep markets or job gains in the black.
“In light of the broad-based and unacceptably high level of inflation, the intermeeting news of higher-than expected inflation, and upside risks to the inflation outlook, participants remarked that purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations,” the minutes read. “Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”
Russia’s invasion of Ukraine, President Joe Biden’s depletion of our Strategic Petroleum Reserve, and a resumption of demand as we head into winter may escalate energy costs so dramatically that core inflation will be the least of the worries of much of the working class, but make no mistake: The worst is yet to come, and the Fed, forced to act alone thanks to a negligent White House and Congress, will not stop the pain until the poison of inflation is extracted from the economy.
