Market speculators feel the bite of higher inflation

The CPI was released this morning. Many anticipated a continued softening of consumer price inflation. Here is what the big banks estimated:

Headline inflation came in at 8.3%. The top of the estimates.

To me, the bigger surprise was that “core” inflation is really picking up steam. The “core” rising like this really puts the nail in the “transitory” coffin. It should also put to bed the idea that this inflation is due to “supply-chain issues”. The fiscal and monetary response to Covid flooded the system with money. This is now resetting prices higher, permanently.

This money ran through the CPI components in waves and it is continuing to do so.

From Bank of America’s heatmap, we see where the real damage is taking place.

Shelter continues to exert pressure on the “core”. We are seeing a correction beginning to start in the real estate market but rents aren’t likely to adjust as fast. We also saw a big jump in “Medical Care Services”, “Household Furnishings” and “Other Goods”. Energy has taken a big drop thanks to President Joe Biden draining the Strategic Petroleum Reserve. As David at LiveBetterNow illustrates. This will not be able to last much past the mid-term elections.

HOT: Inflation stays hot

With oil becoming tight again after the mid-terms, the waves of inflation will continue to pound consumers.

Year-over-year, the heatmap shows where the real pain is being experienced. Look at those numbers for shelter, medical services and commodities, transportation services, alcohol, other goods and food. Those are running very hot. Vehicles were hot but now they’re not. This and the decline in energy might be the only bright spots on the map.

This will certainly give the Fed all the ammo they need to continue to raise the Fed Funds rate agressively. At the moment, the CME FedWatch tool shows an 76% chance of a 75 basis point hike and an 24% chance of a 100 basis point hike. The odds of a 100 basis point rise continue to increase. The Fed has been talking the talk of more aggressive hikes, lets see if they can walk the walk at next week’s meeting.

While many might blame the Fed or the government for the madness, I know who the real culprit is…