A Devil Hides in the Latest Inflation Data

Expect Higher Inflation When This Temporary Reprieve Ends…

The devil’s in the details… and apparently, he’s a hungry bugger. 

I’m sure you’ve heard the joyous news: Inflation is falling! Praise be the Biden economy! 

The July Consumer Price Index (CPI) report, released Thursday morning, showed an annualized inflation reading of 3.2%—still above the Federal Reserve’s preferred 2% target (a random target that a New Zealand central banker pulled out of his hat years ago in a hurry to get home for the Christmas holidays). 

Still, annual inflation is down from its peak of 9.1% back in June 2022. 

Alas, as noted at the outset, the devil hides in the fine print… amid the niggling minutiae so easily lost when focusing on the big picture. 

And with July’s CPI report, the niggling minutiae are a bigger story than the full report itself. 

For you see, the devil tells a darker story… 

At first glance, the report appears positive. The energy index is down 12.5% from July 2022, with gasoline prices down by nearly 20%. 

Natural gas, which lots of Americans use for cooking and fireplaces and whatnot, is down 13.7% from last July. And fuel oil, which lots of other Americans use to heat their homes, is down 26.5% during that same time frame. 

Meanwhile, used-car prices (remember how high they spiked during the pandemic?) are 5.6% cheaper. 

But, if you will allow me translate for the devil, those numbers are, in fact, telling us that inflation is far higher than the reported 3%. The real pain in the pocketbook is being masked by much cheaper energy prices.  

These lower energy prices are a temporary salve, and we should expect rebound trauma in the offing. They simply mask the real pain in the pocketbook of Americans. Once energy prices bounce higher again—which energy companies and global energy agencies are warning is likely to happen later this year—inflation will rage once more.  

See, if you remove volatile energy and used-car prices from the equation, a dark story of financial masochism emerges… 

Let’s start with food: The food index is up 4.9%. That includes “food at home” (up 3.6%) and “food away from home” (up 7.1%), which we’ll conveniently call “restaurant meals.”  

Now, I’ve lived outside the U.S. for the last five years, but I don’t think the culture of eating out has changed in the slightest. Last time I was in the U.S.—last fall, in Atlanta and south Louisiana—every street corner was painted with a kaleidoscope of restaurant signage. Every strip mall was basically anchored by a national or regional chain, and about 418 other mom-and-pop eateries were packed into that shopping center as well. 

So, clearly, American wallets are feeling the burn of higher food prices. Those food prices, by the way, are likely to remain elevated for some time.  

India, wracked by weather woes, has banned certain rice exports (apparently, Indians living outside of India are wiping out store shelves for fear of running out of rice). And Russia, amid its failed war in Ukraine, has reneged on a deal that allows grain to be exported from Ukraine, one of the world’s largest producers of wheat. 

But let’s go beyond food… 

Electricity is up 3% since last July. New vehicle prices are up 3.5%. Clothing is up 3.2%. Medical care commodities (prescription and over-the-counter drugs, medical equipment, etc.) are up 4.1%. Shelter is up 7.7%. And transportation services are up 9%. 

Aside from gasoline and the fuels used to heat and cook, every basic expense we have in life is up significantly more than 2%. 

Declining energy prices have given us a reprieve, and the business-news talking heads are happily noting how the Biden administration has brought inflation to heel. 

Alas, those niggling overlooked details tell us that, at best, we’re simply in economic purgatory… The devil will go back to playing havoc with energy prices later this year. 

Once that happens, inflation will again shoot higher, easily back above 5%. 

That will, of course, create quite a conundrum for the Federal Reserve.  

Interest rates are already north of 5%. Personal and business bankruptcies are escalating. If the Fed raises interest rates more and more to fight inflation, at some point the consumer breaks… which means the economy breaks… which means Wall Street breaks. 

As I’ve written in the recent past, I think the Fed is trying to orchestrate a break in the economy. Any kind of economic crisis would provide cover for Fed Chair Jerome Powell and his pooh-bahs to cut rates in an emergency session, and then drive them even lower over time. That would ease the pain on Uncle Sam… because today’s high interest rates are forcing him to pay historically large interest payments on the national debt. 

And if that keeps up, the devil won’t hide in the details any longer. 

He’ll be out in the open, excitedly directing a monetary collapse. 

More on that to come…