Inflation Soars to Record Level Despite Fed’s Increasing Interest Rates

CPI numbers from June are back, showing new 40-year record highs of 9.1%. This is despite the Fed raising the Federal funds rate at an unforeseen pace and the market simultaneously getting hammered.

Wall street analysis projected the figure increasing from May’s 8.6% to 8.8%, but the statistics are even worse than projected. 

Mark Hertline on Twitter responded, “As bad as we thought it was…it was much, much worse.”

Robert Frick, a corporate economist at Navy Federal Credit Union, in a note to clients said, “CPI delivered another shock, and as painful as June’s higher number is, equally as bad is the broadening sources of inflation.” “Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel.”

The June increase is heavily influenced by soaring food and gas prices. Food prices increased 1% from May and 10.4% over the previous 12 months, and Electricity costs rose 1.7% and 13.7%, respectively.

There are no signs or record gas pricie s slowing there either, with prices jumping 11% over May, and energy costs up 60% year over year.

Not factoring in food and gas, inflation jumped 0.7% for the month and 5.9% for the year, and home rental costs also rose 0.8% in June, the most significant monthly increase since April 1986, according to the BLS.

Mark Haefele, CIO at UBS, said, “We continue to think inflation will start returning to more normal levels, averting the need for a further hawkish turn in monetary policy. This process, however, will be gradual, and inflation will likely remain above the Fed’s 2% target for some time to come. This favors value over growth sectors, as they have historically outperformed when inflation is over 3%, based on data going back to 1975. We favor the UK equity market, which has a heavy weighting toward value stocks. And in terms of specific sectors, we expect energy to gain from a revival in the oil price.”

The equities market opened down hearing the news, but the S&P 500 and the Nasdaq are approaching previous close levels at the time of writing. The increasing inflation can worry investors, as it potentially could mean stricter monetary policy from the Fed in the coming months.

This paints a very Bullish outlook for BTC because its limited supply makes it immune to such issues, although it could create some negative pressure in the short term if the Fed responds.

Author: Garrett Meifert

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