The October CPI data arrived a bit cooler than expected, but the market reaction has been hot and furious. Peter Schiff broke down the CPI data and the market reaction to it in his podcast. Despite the spin, Peter said the Fed isn’t making any kind of progress in fighting pumpiing.
The particular headline annual price enhance came in at 7. 7%. It’s the first time in quite a while we’ve seen a CPI under 8%, and it has been lower than the 7. 9% projection. This is the number everybody focuses on, but it’s a small misleading.
The month-on-month CPI increase had been 0. 4%. That was furthermore better than expected, feeding in to the perception that inflation is certainly cooling. But the month-on-month CPI increase in September was also 0. 4%. So , prices increased at the same pace in Oct as they did in September.
Core CPI, stripping out more volatile food and energy prices, had been up 0. 3% month-on-month and 6. 3% with an annual basis.
Keep in mind, inflation is worse than these numbers suggest. This CPI uses a government formula that understates the actual rise in prices . Based on the formula used in the 1970s , CPI remains is closer to double the official figures — a historically large number.
But all the October CPI data was lower than the consensus range of projections and the markets focused on that more than the actual quantities, and the reacted with a huge rally. The Dow was up just over 1, two hundred points on Thursday. The particular NASDAQ was up seven. 35% and the S& L 500 saw a 5. 5% rally.
Meanwhile, the dollar tanked and bond yields flattened. One news report the scope of the dollar’s move “ breathtaking. ” The dollar index is lower 6% from its September higher.
Precious metal was up nearly $50. In fact , precious metal charted one-day rallies of $52, $40, and $49 in the span of five trading days last week. That is quite unusual in the gold market.
“ I can’t even keep in mind when that happened just before, and I don’t think that’s minor. Something is going on when you see precious metal moves of that magnitude. ”
Despite these enormous moves in the financial markets, Peter called the October CPI “ much ado regarding nothing. ”
This is not good news. This does not show that the Given is making any improvement when it comes to inflation. Yes, the year-over-year number is lower than it was — 7. 7. But that’s still a huge number. And of course, it doesn’t actually capture the degree to which costs are actually moving up. The real rate of inflation is probably dual that. ”
Peter said you need to expect CPI data to ebb and flow.
There is no reason to believe that will at some point in the near future, we’re not going to print a record-high year-over-year CPI. ”
He also remarked that annualizing the 0. 4% month-on-month CPI increase we had in September and Oct comes to 5%. While that’s lower than the 8% price we saw earlier this year, it is still a far cry from the Fed’s 2% target.
Nothing the Fed had done thus far is going to succeed in getting inflation down to 2%. ”
The financial markets now expect the next rate hike will be 50 foundation points instead of 75, followed by a 25-point hike. Next, the markets think the Fed will be finished tightening.
Even if the Fed continues to hike rates, it can be heading never catch up to an pumpiing curve this it is miles behind. Because, as Trying to find saying, the only real way to combat inflation is a two-pronged attack, which would include positive genuine interest rates … and we require cooperation from the US government. We need to see cuts in government spending, something that’s not going to happen. In fact , federal government spending is going to continue to boost, and so will the deficits that are making that investing possible. ”
Peter pointed out that all of us still have stimulative monetary and fiscal policies with adverse real interest rates and escalating budget deficits.
You’re not going to publish a fire by pouring gas on it. ”
Peter said looking more deeply into the CPI information reveals “ shocking examples” of just how little progress the Fed is making in its inflation fight. For instance, the price of food at home increased by 0. 6% month-on-month. Food at restaurants has been up 0. 9% over the month. Energy prices rose 1 . 8% during October. Services charted the biggest increase since 1982.
These are numbers that are contained within this supposedly great news on CPI. ”
Some costs did fall in October, which includes new and used vehicles. But why are used car costs falling?
Individuals can’t afford to buy all of them!
Individuals are spending so much money upon food, they’re spending so much money on energy they don’t have as much money left over to buy a car, used or even new. And so, prices are getting down. But what’s more essential to most people than the price they pay to buy a car could be the rate they pay to finance the purchase of the car. Because most People in america are too broke to pay money for a car. They have to borrow the money. And auto loans are way up. So , even though car prices are lower, it costs more money to get a car because the interest rate is definitely higher on the car loan you need to take out to buy that car. ”
We’re seeing the same phenomenon in shelter costs. Home prices are falling, yet mortgage rates (along with taxes and insurance) are spiking, keeping the cost of purchasing a house high.
Peter reiterated, “ The particular Fed is not making any progress at all in reducing inflation. ”
These numbers normally are not going to get any better. Actually they’re going to get worse. Because now, you have a falling dollar that is going to accelerate the increase in customer prices. ”
A strong dollar kept down import costs. The weakening dollar will raise the prices of imported products.
But as Peter pointed out, insignificant delete word, the Federal Reserve can use this CPI data in order to claim it is making progress in the inflation fight plus ease off the tightening gas.
The particular Fed is going to claim – falsely, but it will claim – that it is making progress on inflation. And the marketplaces will accept that. They’re not going to question that excuse. It will a minimum of pass the smell check of plausibility because a lot of people won’t dig deep enough to see what’s actually taking place. They want to hear what they want to hear. And so, they will buy this particular. This is a plausible excuse for your Fed to use, especially in gentle of their prepared remarks [from the November FOMC meeting.]”
Peter said this is the inflation report that the marketplaces wanted.
Because the Fed now has a plausible excuse, the markets are buying stocks, and they’re purchasing bonds, and they’re dumping bucks, and they’re buying gold. But the reality of this report means that the Fed is in the pivoting even though it’s not actually close to winning its fight against inflation. And it’s ultimately going to do a hard pivot even as the inflation rate accelerates and makes new heights, because the recession that we already are in is going to get much worse. ”
In this podcast, Philip also talked about the midterm elections and the bitcoin meltdown.