It's Jobless (and Inflation) Thursday

And while initial unemployment claims fell by 16,000 to 223,000, but the big economic story today is that the US consumer price index rose by 7.5% year over year.

Yes, this number is moving into scary territory.

It's now a slam dunk that the Fed will raise interest rates by at least 25 basis points (¼%) at their next meeting, and a distinct possibility that they will bring down the hammer with a 50 basis point increase.

I am more concerned about the effects of action by the Federal Reserve to tighten the money supply than I am with the inflation numbers. 

I see this recovery as far more fragile than most folks do, though.

Looking at the number, it appears that cars & trucks, energy, and rent are driving this.

The first two are driven by supply chain issues, and the latter by hedge funds storming into the rental markets and ruining them, as they do everywhere they go:

A relentless surge in U.S. inflation reached another four-decade high last month, accelerating to a 7.5% annual rate as strong consumer demand collided with pandemic-related supply disruptions.

The Labor Department on Thursday said the consumer-price index—which measures what consumers pay for goods and services—in January reached its highest level since February 1982, when compared with the same month a year ago. That put inflation above December’s 7% annual rate and well above the 1.8% annual rate for inflation in 2019 ahead of the pandemic.

The so-called core price index, which excludes the often volatile categories of food and energy, climbed 6% in January from a year earlier. That was a sharper rise than December’s 5.5% increase and the highest rate in nearly 40 years.

Prices were up sharply in January for a number of everyday household items, including food, vehicles, shelter and electricity. A sharp uptick in housing rental prices—one of the biggest monthly costs for households—contributed to last month’s increase.

………

Used-car prices continued to drive overall inflation, rising 40.5% in January from a year ago. However, prices for used cars moderated on a month-to-month basis, a possible sign that a major source of inflationary pressure over the past year could be easing.

Food prices surged 7%, the sharpest rise since 1981. Restaurant prices rose by the most since the early 1980s, pushed up by an 8% jump in fast-food prices from a year earlier. Grocery prices increased 7.4%, as meat and egg prices continued to climb at double-digit rates.

Energy prices rose 27%, easing from November’s peak of 33.3%, but a jump in electricity costs was particularly sharp when compared with historical trends.

………

Prices for autos, household furniture and appliances, as well as for other long-lasting goods, continue to drive much of the inflationary surge, fueled by pandemic-related supply-and-demand imbalances. Most economists expect the dynamic to fade as businesses adapt and demand normalizes. But it isn’t clear when supply snarls will ease enough to take pressure off prices, particularly because of recent disruptions from the Omicron variant of Covid-19.

Fed officials also think the surge in inflation will ease later this year, but the sustained nature of price increases has prompted it to consider raising rates more quickly than previously planned.

I do not think that this will end well, particularly in housing, where rising interest rates are likely to create major problems.