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By Alex Eule
| Wednesday, July 13 It
Gets Worse. In what now feels like a regular routine,
the monthly inflation report arrived this morning -- and confirmed that
prices continue to head higher. The consumer price index for June
rose 9.1% from a year ago. On a month-to-month basis, prices were up 1.3%, the
fastest monthly rise since the pandemic began. Today's CPI report all but confirms at least
a three-quarter point rate hike is coming at the Federal
Reserve's next meeting in late July. By the end of the day,
traders were actually betting that the rate hike would be a full percentage
point. The futures market now shows a 78% chance of that full-point increase,
up from odds of just 8% yesterday. "The Fed hasn’t increased rates by 100
basis points in a single move since the 1980s, and the idea would have seemed
far-fetched a few months ago," Barron's Sabrina
Escobar and Nicholas Jasinski wrote
today. "But so did a
75-basis-point hike, which is exactly what the Fed announced at its last meeting in June. That was
the biggest increase since 1994, and followed a half-point increase in May." As one Barrons.com commenter wrote,
"Desperate times require desperate measures." Barron's Meghan
Cassella notes that nearly all of the CPI's components
rose in June: ...Gasoline, shelter and food costs
contributed most significantly to drive up headline inflation: The gasoline
index was up 11.2% over the month of June, while food rose 1%. The cost of groceries is now up 12.2% over
the past year, the largest annual increase since April 1979. Some economists are once again now seeing
"peak inflation," in part because commodity and energy prices have
begun to ease in recent weeks. Perhaps that's why stocks generally took
today's inflation news in stride. After falling steeply at the open, the
major indexes quickly rebounded with the S&P 500
ending the day down just 0.45%, while the Nasdaq Composite
fell 0.2%. Investment strategist Louis
Navellier wrote that "investors seem to have
rationalized that the numbers are backward-looking and that commodity prices
have continued to fall and will soften the trends in short months
ahead." As of this morning, Navellier noted, the Cboe
Volatility Index, or VIX, was "only up 1.1 to a still
not threatening 28.3." In fact, the VIX fell from there, ending the day
down 1.7%. Despite what most strategists called a terrible report, the market
just isn't panicked. The risk now is that the Fed makes a
weakening economy even weaker. Tom Porcelli, chief U.S.
economist at RBC Capital Markets, wrote today that "the Fed is
tightening into an economy that is quickly losing momentum." |
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