Well inflation numbers came out this week…
And the results weren’t great, especially if you like your money to count for something.
The Bureau of Labor Statistics (BLS) reported that consumer prices rose 0.4% from August to September. That translated to a 5.4% increase from a year ago — the highest increase in over 10 years.
Water those numbers down by taking out food and energy prices and prices rose “just” 0.2% month-over-month and 4% year-over-year. The year-over-year number was down half a percent from the previous month… but is at levels not seen since the early 1990s.
Core Inflation Rate
source: tradingeconomics.com
This is noteworthy because food prices accounted for a 4.6% bump in prices while energy prices increased an average of 24.8% from the previous year. (Take out “energy services” like electricity and the price increases were over 40%!) You can see it all in the BLS table below:
This is basically telling us that inflation pressures are spreading far and wide throughout the consumer sector.
Producer prices continued higher as well, increasing 0.5% from August to September pushing the annual price increase to 8.6%.
Bearing in mind the Fed’s inflation “mandate” is supposed to be around 2%, these numbers might reasonably be called shocking.
But Don’t Worry, It’s All Transitory
Naturally, the usual suspects kept trying to paint the best possible picture while not sounding completely out of touch with reality.
And…
Yes, things may seem challenging now, but don’t worry… all is well.
So the messaging has been pretty much status quo…
Except for One Thing…
There was one number in the bunch that didn’t get a whole lot of digital ink — the New York Fed’s Consumer Inflation Expectations report.
This report is a survey of actual consumers on where they believe prices are going. (A couple weeks back I wrote that businesses were now predicting higher prices for the foreseeable future. This survey reflects what consumers are thinking…)
Consumer opinions aren’t typically presented with the same importance as the big agency reports (CPI, PCE, NFP and the rest of the economic alphabet). But as it turns out, the financial wizards in Washington do keep an eye on them because “they view them to be the ultimate determinant of actual underlying inflation trends over the longer run.”
These numbers have been telling a very different story. Let’s look at some charts courtesy of the NY Fed…
First is the one-year inflation expectation…
Consumer Inflation Expectations: One Year
Next is the three-year inflation expectation…
Consumer Inflation Expectations: Three Years
You can see that consumers’ median expectations are running at 5.3% one year out and 4.2% three years forward.
But take a look at the grey areas tracking behind the blue lines. That’s called the dispersion range and it represents the 25% to 75% quartiles of the survey. Without getting too statistical, it basically means that at least 25% of respondents believe inflation could spike as high as 8.7% within the next year and remain as high as 7.7% over the next three.
Not particularly encouraging.
Now let’s look at a couple other numbers in the report. First is household income expectations:
Household Income Growth Expectations
Now let’s look at household spending expectations:
Household Spending Growth Expectations
Consumers are now expecting their expenses will nearly double relative to their income over the next 12 months.
Why Do We Care About These Numbers?
To put it a little cynically, these numbers show how “on board” consumers are with the fantasy narrative that Wall Street and the Fed are trying to spin.
These numbers are not good.
Consumers are catching on that inflation isn’t just some temporary phenomenon that will self-correct in the coming months. And they’re not optimistic about their financial futures.
Monetary policy since… well… since the tech crash of 2000 has been one of debt monetization. Which, in turn, has basically been responsible for the widening of the wealth gap in the U.S.
But that’s not what they want you to think…
They want you to believe “the economy is doing great — because look how high the stock market is.” That’s a total fallacy.
Wall Street ain’t out there to be your friend.
The reality is, stock prices are no longer a measure of economic growth — the driver of real wealth. They haven’t been for a long time.
Instead they simply represent the asset inflation that out-of-control monetary policy has created — “fake wealth” that can disappear VERY quickly. (Over $5 trillion of “wealth” was erased from retirement funds, 401(k)s and investment portfolios in the crisis back in 2008.)
In my opinion, this kind of manipulation is morally despicable. Unfortunately, it’s a fact of life and the world we have to live in.
So What to Do? Keep Riding the Bubble… for Now
It’s been said (not by me, but I like to keep repeating it) that the market can stay irrational longer than you can stay solvent.
Sure, we’re in a bubble. But trying to anticipate whether the Fed may act to curb inflation and how the market will react to it is the fastest way to go broke.
It’s absolutely in Wall Street’s interest to keep the “strong market” narrative alive (no matter how much gaslighting it takes). They’ll always be in search of new ways to keep inflating their bottom lines
Even so, at some point the Fed will have to address these horrible numbers and the market will react precipitously.
So what to do?
Simple. Ride their bubble as far as you can. But more importantly, don’t buy into the lies analysis the “experts” offer.
Simply being aware of the economic reality where the markets are concerned can be your greatest edge for building and maintaining your wealth. And that’s why we work overtime to bring you the truth about what’s happening in the markets.
Make the trend your friend,
Bob Byrne
Editor, Streetlight Confidential