Today’s high inflation number was expected as the high number was ‘leaked’ to markets yesterday by the Biden administration. White House press secretary, Jan Psaki, said they expected inflation to come in hot. Here are her exact words:
“We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike,” Psaki told reporters.
First inflation was transitory, then supply chains, and now Russia is to blame. The Putin price hikes. Has a lot of us contrarians laughing as we knew inflation was coming back in 2019. All these excuses and nobody blames the Federal Reserve and the fact the US printed 80% of all US Dollars ever to exist in the last 3 years. For the Fed to really bring down inflation, they will need to hike to double digits just like Paul Volcker did, and also will need to stop purchasing assets on their balance sheet. They would need to unwind fast. The latter is being hinted at with the $95 billion tapering per month.
Let’s take a look at that CPI data for March 2022.
The consumer price index, which measures a wide-ranging basket of goods and services, jumped 8.5% from a year ago on an unadjusted basis, above even the already elevated Dow Jones estimate for 8.4%. Excluding food and energy, the CPI increased 6.5%, in line with the expectation. March’s headline reading was the highest since December 1981. Core inflation was the hottest since August 1982.
Food rose 1% for the month and 8.8% over the year, as prices for goods such as rice, ground beef, citrus fruits and fresh vegetables all posted gains of more than 2% in March. Energy prices were up 11% and 32%, as gasoline prices popped 18.3% for the month.
Used car and truck prices declined 3.8% for the month, though they are still up 35.3% on the year. Commodity prices excluding food and energy fell by 0.4%. Gains in clothing, services excluding energy and medical care, increased 0.6% for the month. Transportation services also rose 2%, bringing its 12-month gain to 7.7%.
But here’s some good news. Inflation could be peaking here:
“The big news in the March report was that core price pressures finally appear to be moderating,” wrote Andrew Hunter, senior U.S. economist at Capital Economics. Hunter said he thinks the March increase will “mark the peak” for inflation as year-over-year comparisons drive the numbers lower and energy prices subside.
Or another take:
“Overall, this report is encouraging, at the margin, though it is far too soon to be sure that the next few core prints will be as low; much depends on the path of used vehicle prices, which is very hard to forecast with confidence,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “We’re sure they will fall, but the speed of the decline is what matters.”
We’ve heard this ‘inflation is peaking’ story before. It never has, but maybe this time analysts will be correct. Unfortunately, approaching inflation as a monetary phenomenon, I see higher inflation coming…and sticking with us for a long time.
The US 10 year yield initially rose as expected from the market expecting more interest rate hikes. However, we have now reversed on the day and seeing money run into the safety of bonds.
The US markets also had a nice pop. At time of writing, the Nasdaq is the strongest with a gain of 1.15%. Still early, and the intraday charts are now showing some signs of topping. If you are a member of our Discord group, I have said that US markets have broken below major support zones, which also acted as higher lows in the recent uptrend. Today’s rejection so far is from that resistance level. What was once support now has become resistance.
Gold is ripping early in the trading day. The precious metal is up 1.3% at time of writing. More importantly, we are breaking above recent highs. $1960 has been our resistance zone as you can see from my chart. With the ten year yield rising and the US Dollar rising, many have expected gold to dump. Gold has remained resilient, and now potentially confirming a breakout. Gold is that inflation hedge, and perhaps the gold markets are pricing in more inflation and the Fed not being able to do a single thing about it. The whole confidence crisis I have been explaining to readers. Gold does well when people begin to lose confidence in the government, the central bank and the fiat currency.
Let’s see if gold can confirm a close above $1960 to trigger a breakout. We are then looking at levels above $2000. Let’s also watch to see if stock markets reject or manage to close above current resistance.