INFLATION WATCH shows higher numbers, and now Wall Streeters don't care?

This week brought back INFLATION WATCH, including today's release on consumer prices. Not surprisingly, it confirmed consumers were paying more in August, with the trend going the wrong way.

The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 2.9% annually in August, a rise from July's 2.7% increase and on par with economists' expectations.

Month over month, prices rose 0.4%, an uptick from July's 0.2% increase and higher than economists' expectations of a 0.3% monthly gain. The rise was driven by stickier gasoline prices and firmer food inflation.

Core inflation, which strips out volatile food and energy, rose 3.1% year over year in August, unchanged from July and in line with estimates. On a monthly basis, core prices climbed 0.3%, matching July's increase, which was the strongest monthly rise in six months.

So your higher grocery bills in the last month are indeed showing up in this data, and there is evidence tariffs are being passed through to store shelves. Auto parts and equipment were up 0.6% last month and 2.1% over the last 3 months, and tools, hardware and outdoor equipment went up 0.8% in this report, and 2.6% since May.

The inflation was especially obvious for groceries, as food at home jumped by 0.6% last month, the largest one-month increase in nearly 3 years. That included the largest meat price increase since October 2021, jumping by 1.8% in August, a cumulative increase of nearly 4% in the last 3 months, and 7.3% over the last year.

And with some meats, prices are going up much more than that.

Hey, remember when Trump would go on and on about the price of bacon this time last year? Someone should follow up on that one.

And businesses are also still paying higher prices, as yesterday's Producer Price Index report may have had a 0.1% decline on the topline, but that was driven by a 1.7% decrease in margins for wholesalers and retailers, as well as a drop of 0.4% in energy. Take that and food out, and the PPI went up 0.3%, and a 2-month gain of 0.9%.

And prices went up in August between business reception and final production (as shown by Stage 3 and Stage 4 in this chart), and followed a large intermediate increase in July.

That includes a 2.8% increased in processed meats and a 4.9% increase in processed poultry around Stage 4. So those prices should be continuing to go up in at least the next few weeks.

So with higher inflation being confirmed with these reports, that should discourage the stock market, as it’ll lessen the desire of the Federal Reserve to cut interest rates, right?

WHAT IS GOING ON HERE?

US stocks closed at record highs on Thursday as the latest reading on inflation showed consumer prices ticked up in August and jobless claims rose to their highest level in nearly four years. Together, the data helped set expectations for the pace of interest rate cuts this year. The Dow Jones Industrial Average (^DJI) led stocks higher, rising 1.4%, or over 600 points, and closing above 46,000 for the first time. The S&P 500 (^GSPC) rose over 0.9%. The tech-heavy Nasdaq Composite (^IXIC) gained around 0.7% for its fourth-consecutive record close and first time closing above the 22,000 mark....

The [inflation] print isn't expected to dissuade the Federal Reserve from lowering rates at its meeting next week, as recent federal data has shown cracks in the labor market. An update on weekly jobless claims on Thursday continued to paint the picture of a weakening jobs landscape, with applications for unemployment benefits jumping to 263,000, the most in nearly four years.

Traders see a greater than 90% chance of a quarter-point reduction next week, and the vast majority expect the central bank to cut rates three times before the end of the year.

I get that the jobs market is really weak and in a near-recessionary place (especially after seeing the major downward revisions for early 2025 announced this week), but how did today’s news change what we thought was going to happen with interest rates? All of those traders thought there would be a rate cut yesterday, and the chances of a 50-point rate cut (per the CME’s probabilities) went down from nearly 9% to just over 5% with the 0.4% CPI number.

Do they think the bad jobs market is going to override the higher inflation we are likely to deal with for much of the rest of this year? And they think the Fed will agree with that and lower interest rates to a point where we have real rates at or below 0%? That sounds like some coked-up bros trying to wish something into reality, more than any kind of honest assessment of our economic situation.

Even if the economy gets re-started from rate cuts, it would make it even more damagin when reality sets in for our already-large AI and stock market Bubbles, and those Bubbles burst. And if the Fed realizes that prices need to be brought under control, and stops cuts or even raises rates to hold down inflation, I’d figure there would be an even-sooner huge run to the exits on both of these Bubbles, since the easy money they were counting on isn't going to happen.

This is how you get stuck in stagflation, and that sure seems to be a good description of the place the Trump/GOP economy is heading toward, if we're not already there.