This morning the BLS reported the biggest increase in year-over-year consumer prices in 30 years. The overall index increased by a stunning 6.2% and the core index(ex food and energy) increased by 4.6%. The increases were broad based yet the housing component remains substantially understated from what is occurring in the real world. Specifically owners equivalent rent was up 3.1% and tenant paid rent was up 2.7%. Knock, knock the real world increases for both of these housing measures are now running two to three times the official rate of increases. Thus as the official index catches up to the real world measured inflation will continue to run hot. Simply put, the term "transitory" is so last year.
The bond market responded by pushing up still low interest rates by about 10-15 basis points across the yield curve. What this means is that Fed will soon accelerate its tapering process and will start to pencil in rate increase as early as next June. As we noted recently the Fed is behind the curve and the markets will not find it a pleasant experience as the Fed starts to play cach up. (See Shulmaven: The Fed and the High-Pressure Economy and Shulmaven: Too Complacent about Inflation ) Further it is making less and less sense for the Biden Administration to push its already expansionist fiscal policy with its $1.75 Trillion Build Back Better social programs.
No comments:
Post a Comment