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Last Hurrah for Year-Over-Year Inflation, Rate has Peaked or Soon Will

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34 comments on Last Hurrah for Year-Over-Year Inflation, Rate has Peaked or Soon Will

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Inflation Genie

The overwhelming consensus opinion is that the inflation genie escaped the bottle and will not be put back in.

The next CPI report is tomorrow morning. Here’s the Econoday consensus. 

Contrary Opinion

My opinion is the same as that of the bond market. Despite a Huge Upward Surprise in Jobs on November 5, treasury yield dipped. 

Earlier today I reported, Producer Prices Jump Another 0.6 Percent in October Yet Bonds Yield Dive

Yesterday we had an interesting bond market reaction in which yield on the long bond fell but yields on the short end rose and middle rose. 

Forward looking, these are recessionary reactions. 

CPI-Year-Over-Year

Despite month-over-month increases of 0.9, 0.5, 0.3, and 0.4 percent in June, July, August, and September, the year-over-year rate has been flat.

There are easy comparisons for the next couple of months but then what?

CPI Looking Ahead

A year ago the CPI only rose 0.1 percent. So I do expect we will see another year-over-year high tomorrow. The comparison is just too easy.

Looking ahead a couple of months is another matter.

The Fed is tapering. The miraculous stock market rise has fueled demand for cars, electronics, and housing. 

The inventory build has been massive. Third-quarter GDP was positive only because of an inventory build. 

Belief that stocks and the Fed can do no wrong is perhaps the biggest bubble there is. 

What About Rent?

Off Hiking

I will not be in a position to comment on the CPI tomorrow until late in the evening. 

I will be hiking the Subway Trek in Zion. 

So those were my comments in advance.

Here is my post on Zion National Park – Subway Trek Part Three – Inside the Subway

More Subway Images

Also, see Zion National Park – Subway Trek Part Two – The Crack

For more information regarding the “Subway Trek” and a nice shot of Archangel Falls as well, please see Zion National Park – Subway Trek Part One – Archangel Falls

Advance CPI Comments

Don’t be surprised if the CPI hits a new year-over-year high tomorrow and the bond market looks the other way or sideways. 

Whatever the reaction, I will be out hiking. 

But stay tuned in. I have some interesting economic posts auto-scheduled while I am hiking.

Thanks for Tuning In!

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Mish

Mike Shedlock

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34 Comments
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wxman40
wxman40
4 years ago
So does the reduction of money supply, the real deflation, start in February or earlier?
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GaryL
GaryL
4 years ago
Exquisite photography, as always…..You are assuming that inflation is topping because of future comparisons. Maybe, but what if inflation is accelerating faster than comps with last year will stabilize or regress the numbers? It is the stated policy of the Biden Administration to flood America with dollars. Maybe those dollars are finally starting to move in the economy, with inadequate brakes via interest rates.
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Eddie_T
Eddie_T
4 years ago
OT…it’s a red day for oil & gas, but I see that my carbon credit plays are all lit up green. I haven’t been following the CC market for long, but it looks like that energy stocks and CC’s do move against each other. It’s an interesting phenomenon and I’m not sure it’s dependable, or even  a real thing…but I’m going to keep watching. I have no explanation. If anybody knows or has a guess, let me know.
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Eddie_T
Eddie_T
4 years ago
What I take away from the signs of impending deflation is that they MIGHT be telegraphing a deflationary event. I’d say there is a good probability.
One thing I’ve learned, is that inflation is not some ebb and flow. Inflation is baked into the cake of fiat money and central banking. It is with us always and everywhere you look…until some huge malinvestment problem hiding under the surface emerges and……BAM….you get a LOT of deflation in a lot of assets very quickly. Inflation is usually almost unnoticeable to most people. Deflation takes away jobs and crushes investment portfolios. Deflation generally presents as an EVENT or series of events….when the herd panics and everybody heads for the exits at once.
Certainly central banks do things to try to prop up markets…..but when they decide to stop (and this appears to be the case with the massive housing bubble in China right now)….then the chickens will come home to roost. It’s not the Fed, it’s the the PBOC, as directed by Chairman-for-Life Xi, who is taking away this punchbowl. The Fed can’t begin to contain that kind of global financial fallout, if the PRC just lets the bubble pop.
So what do you do?  I can only tell you what I do.
First, knowing this is the way the world works, I primarily invest in tangible assets that hold value better than paper assets. It doesn’t mean that they don’t correct. I invest for cash flow. As long as I have cash flow, the nominal price of the assets I own is fairly irrelevant.  Debt service during down markets is what matters. If I can easily service my debt out of free cash flow, I ride it out. If I can’t…..I go down.  Low leverage is key to surviving downturns.
With stocks, you could sell the top if you think you can call it. Good luck, but it’s much easier to call bottoms than tops. People who want to hold on also need to reduce or eliminate leverage. As of the end of this week, my portfolio leverage will be near zero. 
I will start to build cash now and save that and my leverage for the next bottom. I don’t need to rotate, because I’m already 100% invested in extreme value….the P/E’s of the stocks I own (with a very few exceptions) are in the low double digits. My stocks will correct, but not like Tesla. I am building a portfolio for income, not primarily for growth. I need to stay in the market and ADD to my picks in a correction. I have miles to go before I sleep…..er, retire.
Deflationary cycles are always reported as the end of the world as we know it. They never are, in reality. Over the long haul, I think slow growth and the diminishing returns of artificial financial stimuli are a worse problem than a correction in real estate or stocks.
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Tony Bennett
Tony Bennett
4 years ago
Real earnings after todays cpi
“Real average hourly earnings decreased 1.2 percent, seasonally adjusted, from October 2020 to October
2021. The change in real average hourly earnings combined with a decrease of 0.3 percent in the
average workweek resulted in a 1.6-percent decrease in real average weekly earnings over this period.”
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JimMcHale
JimMcHale
4 years ago
Forget inflation. What a hike you will have!
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QTPie
QTPie
4 years ago
Reply to  JimMcHale
The Fed needs to hike too 🙂
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Tony Bennett
Tony Bennett
4 years ago
“The overwhelming consensus opinion is that the inflation genie escaped the bottle and will not be put back in.”
…
Deflation* on tap.  
Looking forward to witness “expert” heads explode.
*asset deflation, which will bleed into CPI
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Carl_R
Carl_R
4 years ago
You got your extreme number today. What happens from here? Moore Inflation predictor, which is based on “baked in” changes has been projecting that inflation will be largely flat for the next six months, and then start falling in about February:
Their chart has been including a number “if the fed is wrong”, which runs considerably higher, and shows inflation peaking in March at 7%. On that line, the projection for October was 5.8%, but the hot number we got today was 6.2%, above even that line.
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Eddie_T
Eddie_T
4 years ago
Reply to  Carl_R
Good info.
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KS Farm Boy
KS Farm Boy
4 years ago
Reply to  Carl_R
“inflation will be largely flat for the next six months, and then start falling in about February:”
So, which is it? Inflation flat for six months, or inflation falling in about February?
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Carl_R
Carl_R
4 years ago
Reply to  KS Farm Boy
That was just a quick, rough approximation. Of course, you could have looked at the chart, and answered the question yourself. A more detailed description of the chart is that the chart shows inflation largely flat from June to December, then small drops before significantly declining in February-June, down to about 3.5%.
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KidHorn
KidHorn
4 years ago
I’m already seeing price drops on some things I buy. I think inflation was caused by covid. Not money printing. Things will go back to normal sometime next year. We’ll probably have a glut in many things that are in short supply now.
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Eddie_T
Eddie_T
4 years ago
Reply to  KidHorn
Some things can come down maybe….(fuel) .  Others like rent, insurance, medical costs, wages, and food…..I seriously doubt it. Rents are up double digits for the year in every market. In the better markets, I wouldn’t look for those to drop down regardless of what happens to equity markets or bond markets…..or what the reported CPI turns out to be.  If it isn’t inflation, then call it destruction of the buying power of your dollars. Either way, it costs more to live than it did a couple of years ago, and this is a new baseline. I don’t think we’re going back.
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Carl_R
Carl_R
4 years ago
Reply to  Eddie_T
Not in every market. Due to a huge building boom in multi-unit apartments, rents here have not risen in several years, and landlords are giving lots of special deals if you sign a lease.
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Eddie_T
Eddie_T
4 years ago
Reply to  Carl_R
Of 100 markets tracked by Zumper, 90 are up….and……of the ten down markets, three are just off slightly.
So, yeah, in a few spots (like say Newark or Baltimore or Buffalo) rents are off substantially. Because nobody much wants to live in those places anymore. But the trend is very much for higher rents, and that will be sticky in the good markets, imho. 
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Johnson1
Johnson1
4 years ago
Reply to  Carl_R
In my neck of the woods too, lots of big multi-unit apartments have been built the past 10 years but not many homes.   Several failed housing subdivision of 2009 ended up being mega-apartments.   It took awhile for people to trust housing again after the housing bubble.  
But I know a lot of people living in apartments and they want to live in a house with a yard.  Worst case a duplex with a partial yard.   Most people I know do not want to live in an apartment all their life and raise kids in an apartment.    
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TexasTim65
TexasTim65
4 years ago
Reply to  Eddie_T
Agreed. All labor intense jobs are not coming down in price as it’s almost impossible to claw back salaries / wages. The same goes with products that are finite in supply (ie not manufactured in mass quantities).
On the other hand, Mish is right that the comparisons are easy because in 2020 there was essentially no inflation so if we get 6% this year after 0% last year that’s approximately 3% for both years. The question is what’s going to happen moving forward in 2022. Expectations from consumers can fuel inflation just by changing habits.
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Johnson1
Johnson1
4 years ago
Reply to  Eddie_T
Yes.  It is not going back.   It has not for over 100 years.   There are some peaks and valleys but always higher highs and higher lows.
Rent is sticky IMHO.  My rental house after the housing bubble popped drop 45% in value.  Of course it had gone up prior and basically gave up all its gains.  But I only had to drop my rent 10%.     
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Eddie_T
Eddie_T
4 years ago
Amazing images from your hike. Some of those are just absolutely surreal….  
Inflation might fall soon, as a result of macro forces, but I wouldn’t look for most things you have to buy to get cheaper.
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tbergerson
tbergerson
4 years ago
CPI super hot at .9% MoM and 6.2% YoY.  .6% and 4.6% Core.  Gold initial kneejerk down then rallied $30 in the next 15 minutes.  Because higher CPI mean real yields fall.  TY yield up a bit but not much.  Actually basically UNCH.  1.473 last.  Was 1.47-1.48 before the number.  If CPI has topped, Gold is near a top as well.  As real yields will start coming up unless yields drop a lot from here
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Casual_Observer2020
Casual_Observer2020
4 years ago
Don’t say you weren’t warned.
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Eddie_T
Eddie_T
4 years ago
Reply to  Casual_Observer2020
Isn’t there a payment due today?
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ColoradoAccountant
ColoradoAccountant
4 years ago
Zion is my favorite.
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Casual_Observer2020
Casual_Observer2020
4 years ago
The YoY numbers matter less as consumers feel the pain of chasing their tails. 
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1-shot
1-shot
4 years ago
The mere fact that 99% of the world is crying “inflation” is proof enough to me that it won’t materialize.
The crowd is always wrong
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QTPie
QTPie
4 years ago
There are two kinks in this logic:
  • PPI is still showing massive increases, and it has a large “waiting in the pipeline” effect on future CPI.
  • There is a really long lag between actual house price increases and when they reflect in CPI due to the silly way the govt.  calculates housing inflation, which is the biggest component of CPI.
As such, there could still be some significant inflation numbers in the future, even if YoY comparisons point to reduced inflation.
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JeffD
JeffD
4 years ago
Great photos to remind people that the real world is still a place of joy and wonders.
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Casual_Observer2020
Casual_Observer2020
4 years ago
The one thing that happen after TARP is bailouts got institutionalized by the Fed and Treeaaury. Now they buy assets all the time and don’t even need congressional approval. That is a huge upward  pressure on long term asset prices of whatever the Fed buys. Effectively they made it so that a deflationary spiral like 2008 and early 2009 can never happen again. The Fed would rather deal with the problems of inflation than the problems of a stock market and economic crash. 
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tbergerson
tbergerson
4 years ago
Reply to  Casual_Observer2020
It is precisely inflation that is the biggest threat to stock prices.  But only if it is not temporary.  As it is likely to be temporary stocks are probably ok.  Real economy?  Not so much
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Tony Bennett
Tony Bennett
4 years ago
Reply to  Casual_Observer2020
 “Effectively they made it so that a deflationary spiral like 2008 and early 2009 can never happen again.”
…
Haha.  
NEVER say “never”.
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numike
numike
4 years ago
This year my respite is at the snake river https://imgur.com/a/t1H8m62
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Eddie_T
Eddie_T
4 years ago
Reply to  numike
Nice spot!
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numike
numike
4 years ago
“I predict future happiness for Americans, if they can prevent the
government from wasting the labors of the people under the pretense of
taking care of them.”
― Thomas Jefferson
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