Inflation Is Hot

By Nicholas Jasinski |  Tuesday, July 13 Inflating. Big Tech stocks led the market today, paring indexes' declines from yesterday's record highs. The latest inflation data sent a ripple through stocks and bonds. The S&P 500 and Nasdaq Composite both lost nearly 0.4%, while the Dow Jones Industrial Average fell 0.3%. Technology was the only sector in the S&P 500 to close in the green today. The trigger for today's angst was the June consumer price index, which gave investors and economists the latest peek at the pace of inflation in the U.S. economy. Here's Barron's Lisa Beilfuss covering the data release today: All told, the consumer-price index increased 0.9% last month from May, when prices rose at a 0.6% clip. From a year earlier, total CPI jumped 5.4% after rising 5% a month earlier. Those rates were much higher than expected. Economists polled by FactSet expected consumer price inflation to cool a touch in June, anticipating a 0.5% month-over-month gain and a 4.9% year-over-year increase... Excluding food and energy, core CPI still rose 0.9% in June from May and jumped 4.5% from a year earlier. That year-over-year gain in core CPI is the biggest since November 1991. There was plenty for both inflation hawks and doves to point to in the data. For starters, price increases were seen in practically every category in the index, including services and housing. But about one-third of the June jump in the core CPI still came from used-car prices, which were 45% higher than a year ago. That's not a statistic that's likely to repeat itself anytime soon.  And those "base effects" that Federal Reserve officials have credited with lifting year-over-year inflation should start to reverse in the coming months. June 2020 was the pandemic-era bottom for the core CPI, so the comparisons will be less drastic from here. There are still plenty of reasons to think that the current red-hot inflation numbers will begin to cool in the coming months. If they don't, then interest rates are decidedly too low and the Fed could be taking its foot off the stimulus gas pedal much sooner than assets like stocks and bonds are currently pricing in. That's the key risk that all investors are working to get their heads around these days. They'll get their next look at the inflation data tomorrow morning, with the release of the producer price index before the market opens. And tomorrow and Thursday afternoons, Fed Chairman Jerome Powell is set to testify before Congress on the topic of monetary policy. He'll be expected to defend or adjust the Fed's patient stance in the face of a rapidly changing economy.

 

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