While we fully expect the rate of inflation to cool a bit over the coming months, we’re not there yet. This morning’s CPI data, however, while a tad higher than consensus expectations, were (based on initial reaction) a bit better than equity markets had feared.

In any event, we’re looking at the highest print, 7%, year-over-year since 1982!

And, yes, deeper-diving skeptics of how the Bureau of Labor Statistics (BLS) comes up with their numbers have some ammunition, which comes in the form of housing rent:

The BLS uses a measure they call “owner’s equivalent rent”, which calculated a very soft 3.3% increase in 2021. Well, here’s economist Peter Boockvar this morning:

“Apartment List on Monday in contrast said rent prices in 2021 were up by 17.8% and makes a mockery of the BLS rent calculation. If you plug that 17.8% into the calculation instead of 3.8%, you’d have inflation above 10%.”

Here’s directly from the report:

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in December on a seasonally adjusted basis after rising 0.8 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.0 percent before seasonal adjustment. 

Increases in the indexes for shelter and for used cars and trucks were the largest contributors to the seasonally adjusted all items increase. The food index also contributed, although it increased less than in recent months, rising 0.5 percent in December. The energy index declined in December, ending a long series of increases; it fell 0.4 percent as the indexes for gasoline and natural gas both decreased. 

The index for all items less food and energy rose 0.6 percent in December following a 0.5-percent increase in November. This was the sixth time in the last 9 months it has increased at least 0.5 percent. Along with the indexes for shelter and for used cars and trucks, the indexes for household furnishings and operations, apparel, new vehicles, and medical care all increased in December. As in November, the indexes for motor vehicle insurance and recreation were among the few to decline over the month. 

The all items index rose 7.0 percent for the 12 months ending December, the largest 12-month increase since the period ending June 1982. The all items less food and energy index rose 5.5 percent, the largest 12-month change since the period ending February 1991. The energy index rose 29.3 percent over the last year, and the food index increased 6.3 percent.”

We couldn’t agree more with Boockvar’s closing point this morning:

“Stating the obvious, the Fed has its work cut out for it as monetary policy is on another planet relative to where it should. I’ll say again though, the inflation stats should top out next month, thus leaving the question as to where it settles out at. I remain of the belief that we will NOT be going back to 1-2% any time soon and 3-4% is more likely. While that is half the current pace, it’s still a problem because the world’s debt levels, valuations, growth and monetary policy sits on a foundation of 1-2% inflation.”

Asian equities rallied overnight, with all but 3 of the 16 markets we track closing higher.

Europe’s in rally mode this morning as well, with 17 of the 19 bourses we follow trading up as I type.

US major averages are green across the board: Dow up 181 points (0.50%), SP500 up 0.71%, SP500 Equal Weight up 0.50%, Nasdaq 100 up 1.00%, Nasdaq Comp up 1.02%, Russell 2000 up 0.40%.

The VIX sits at 17.56, down 4.62%.

Oil futures are up 0.96%, gold’s down 0.06%, silver’s up 0.93%, copper futures are up 2.99% and the ag complex is down 0.05%.

The 10-year treasury is up (yield down) and the dollar is down 0.44%.

Led by MP (rare earth miner), uranium miners, ALB (lithium miner), base metals miners and Latin American equities — but dragged by carbon credits, Nokia, healthcare stocks, oil services stocks and Disney — our core allocation is up 0.56% to start the session.

If only:

“Here’s the thing: during recessions, consumer spending declines along with consumer income. Were the economy left to its own devices, prices would descend accordingly. Poorly-run businesses would fail. Well-run businesses would survive— and then thrive as the economy recovers.”

Mazorra, Martin. Leaving Liberty?: Essays on Politics and Free-Market Thinking

Have a great day!
Marty