Inflation: High and Persistent

The PPI came in hotter than expected. We’re not out of the woods yet. [The Rude Awakening] October 13, 2022 [WEBSITE]( | [UNSUBSCRIBE]( Inflation: High and Persistent - The year-on-year PPI number was 8.5% for September. - Fed minutes indicate they’re worried about “persistent, high” inflation. - The Saudis put Biden to the scimitar. Trump’s Final Gift To America [James Altucher]( There’s a little-known way Trump could – one day – have his revenge. It involves a Federal Ruling he oversaw in the final year of his Presidency that could change America forever… unleash an estimated $15.1 trillion in new wealth… and create countless ways for everyday Americans to benefit. What is this little understood decision? And how will it impact you? [All the important facts are here.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Dear Reader, Though you’ll see red when you look at yesterday’s markets, they were more “flat” than “down.” To me, anytime the market moves less than 0.5% in either direction, it’s noise. But we got a plethora of economic news that would be foolish to ignore. In fact, the price action yesterday was up, even with a less-than-stellar PPI print. That is, until everyone read the Fed minutes. How fast can you go from “transitory” to “high” and “persistent?” In less than two years, it seems. And it gets worse. Saudi declared diplomatic war on Joke Biden. I get why Creepy Joe is taking it personally. In this edition of the Rude, we’ll look at three intertwined pieces of news and what it means going forward. Magnum PPI How bad is inflation? This is Wall Street Silver’s answer: [SJN] Credit: [@WallStreetSilv]( Some were happy with the 8.5% year-on-year increase in September. People with a modicum of math skills immediately realized prices were still rising at a slightly slower pace. [SJN] Credit: [The Wall Street Journal]( Ok, it’s progress. That’s if you believe this trend will continue. I think the jury is still out. Let’s just refresh why the PPI matters. From the [Bureau of Labor Statistics]( The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services. Of course, food and energy prices were the components most responsible for the increase. How does the PPI differ from the CPI (Consumer Price Index)? The PPI is from the suppliers’ point of view for the first commercial transaction. The CPI measures the prices consumers encounter on their - the last - transaction for a good or service. So, you can infer that the PPI front runs the CPI when it comes to inflation. If that inference is correct, then we can see inflation is nowhere near “tamed.” The CPI is coming out this morning at 08:30 EST. The year-on-year consensus estimate is 8.1%. Don’t be shocked if it exceeds that number. Eventually, producers will have to pass on their inflation to consumers. And that’s what’s worrying Jay Powell and his Fed cronies at the moment. Fed Minutes Here it is, in a nutshell, on page 10 of the [Fed meeting minutes]( Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. And right there, I’m going to disagree. The cost of taking action too late has put the Fed in the unenviable position of feeling like it has to do too much. The Federal Open Market Committee’s very inaction from the beginning of the Biden administration has been thrown into sharp relief. To save his legacy, Jay Powell has convinced his fellow FOMC members they must crank up rates at pace to get inflation back to the 2% target. Incidentally, recent Nobel Prize winner - Heaven Help Us - Ben Bernanke forced that price target on the FOMC when he was Chairman of the Fed. Here’s another nugget: Many participants noted that with inflation well above the Committee's 2 percent objective and showing little sign so far of abating, and with supply and demand imbalances in the economy continuing, they had raised their assessment of the path of the federal funds rate that would likely be needed to achieve the Committee’s goals. Good God, they’re not stopping anytime soon. I hate to pull out Keynes. But when the facts change, the FOMC should change its mind. At what cost will they defeat inflation right now? It seems to me the FOMC will happily dislocate the markets themselves to achieve their precious, yet arbitrary, 2% inflation objective. The Fed seems to be confusing their job with The Italian Job: [SJN ] Here’s another: The dollar’s strength largely reflected increasing investor concerns about the global growth outlook as well as widening interest rate differentials between the United States and Japan. No, the widening interest rate differentials are causing growth problems in the rest of the world. There’s simply no way for companies and countries with dollar-denominated debt to pay it back cheaply. They are at the mercy of a policymaking board that doesn’t give a damn about them. “The dollar is our currency, but it’s your problem,” former Treasury Secretary John Connally famously said when Trickie Dickie took us off the gold standard. The US seems to be taking the same view here. But not everyone is taking it on the chin. Covid Was Trial Run to Control Americans – This Is Next [Click here to learn more]( If Biden’s Executive Order 14067 comes to pass, a former advisor to the CIA and Pentagon is predicting legal government surveillance of all US citizens; total control over your bank accounts and purchases; and indefinite Democrat control past 2024. He says Covid was a trial run for how to control a population. Dems will use their “pandemic playbook” to silence any dissent. [Click here to see exactly what to do before it happens](. [Click Here To Learn More]( The Saudis Put Biden to the Scimitar Good friend and [5 Minute Forecast]( writer-extraordinaire Dave Gonigam posted this in our editorial chatroom last night: [SJN] I guffawed. Loudly. After Saudi Arabia’s Crown Prince MBS humiliated Biden - with Biden’s help, of course - the USG has gone full-bore anti-Saudi. The Saudis called the Americans “emotional” and said their decision to cut production by 2 million barrels was economic, not political. I believe them—sort of. There’s no doubt it was smart of OPEC+ to cut production to keep crude prices high. But there’s also no doubt the kick to Biden’s gooey bag was the icing on their cake. The US has now threatened to “review” its relationship with Saudi Arabia, which will do nothing to cool off fuel prices. But the additional fun fact about this sad saga is that the Biden administration begged the Saudis not to implement the production cut for thirty days. The USG didn’t want the cut’s pricing effect to show before the November midterm elections. But gas will likely get more expensive between now and the election. The Saudis are laughing. Biden and the US policy establishment - both left and right - are fuming. I find it amazing that the Saudis genuinely don’t care about the “Leader of the Free World” who happens to head the country that’s their biggest buyer. Except, America isn’t Saudi’s biggest buyer. Not even close. [SJN] Credit: [Observatory of Economic Complexity (OEC)]( Let’s face it, Saudi Arabia doesn’t need America to sell oil. It sells far more to Asia. This begs the question: will Saudi flip sides and join the SCO? The SCO is the Shanghai Cooperation Organization, the anti-NATO if you will. That move looks like it would make a load of sense. But that’s another question for another time. Right now, this OPEC+ move looks to be inflationary for the US. Wrap Up Between an economy still reeling from price inflation, a runaway central bank, and a president who no longer has control of his oil suppliers, the situation looks glum. While Saudi only sent about 7% of its oil to America, the [US imports 11% of its crude from OPEC](. (Russia used to make up 8% of America’s imports.) The supply constriction exacerbates pricing at all levels. And we saw that again with producer prices. Today, we’ll likely see it again in consumer prices. All this is inflationary and, for Biden’s midterm chances, incendiary. Until tomorrow. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( Rude Awakening is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please read our [Privacy Statement](. For any further comments or concerns please [contact us.]( If you are having trouble receiving your Rude Awakening subscription, you can ensure its arrival in your mailbox [by whitelisting Rude Awakening.]( © 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. 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