The Dream Of “Peak Inflation” Just Died
Dreams die hard. And nowhere is that more true than on Wall Street.
As we began this week, the Street had a dream of “Peak Inflation.” the concept, that while the economy may not be getting much better, at least we could put the worst of inflation behind us.
That we had reached a “Peak” in inflation, and that from here on we should see better and better inflation numbers.
To quote Winston Churchill in World War II.
“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
And that’s just what Wall Street was hoping for. And end this relentless rise in inflation. And that fear that inflation was getting out of control.
Instead, the Street had been pouring over the numbers. Analyzing everything they could about this current bout of rising prices. And analysts and traders alike had come to the conclusion, that Inflation was running out of momentum. That perhaps an inflection point had been reached. That maybe, just maybe we were past the “peak” as far as inflation was concerned.
But bight an early Friday morning, the Bureau of Labor Statistics burst our bubble. An hour before markets opened the BLS announced that the most widely watched measure of inflation, the Consumer Price Index hadn’t declined as we all expected, it continued to roar ahead. Far exceeding even the most negative of all forecasts. Rising to 8.6%, a level not seen in 41 years.
To say that this report was crushing was an understatement. Seldom do I remember a single report having such a devastating psychological effect.
Simply put this single report indicates that far from being over, there appears to be no end.
And that bounce in the market that began the last week or so in May was now officially over.
But to the careful observer, there were indications of trouble ahead earlier this week.
Things started to look a little dicey beginning on Wednesday, when of all places, our most reliable current Macro Economic Prognosticators: Gas Buddies came out with their latest missive.
Yes, Gas Buddies, that group that tracks the price you pay at the pump. Gas buddies, may I humbly suggest, is your best indicator of where this economy is headed.
And on Wednesday, Gas Buddies announced that for the first time ever, the average price of gasoline in the country was $5 per gallon.
And yet there it was. Gas continues to climb higher and higher. And with it our economic fortunes seem to sink lower and lower.
Markets at first shook off this news. Perhaps they aren’t as attuned to “Gas Buddies” on Wall Street as they should be.
By Thursday morning markets were performing well, reaching 33K on the Dow shortly after the open. But by then, the Gas Buddies news was spreading. Zero Hedge was the first place I saw the news. Then the Wall Street Journal and all the rest began to tell the story. How gas had hit an all-time high.
And from that point on it was straight down for the markets. By Friday’s close, the Dow had lost 1,600 points in less than 2 days.
Primarily because the Street understands that the number one driver of inflation is gasoline. Or more generally the energy complex. That’s where inflation begins. And that’s where inflation is most virulent.
So from the time Gas Buddies made their announcement, it was clear that the dream of Peak Inflation was only that. A dream.
Friday’s CPI reading was only confirmation of that point.
Until this country gets the price of energy, and specifically the price of gasoline at the pump under control, there will be no relief from inflation.
And, as my readers well know, the chief impediment to any relief in gas prices resides at 1600 Pennsylvania Avenue.
Until they change their policies toward oil and gas, Peak Inflation will remain only a dream.
Have a great day!