April CPI report is out. Overall CPI MoM rose 0.4% in April vs. 0.1% in March while the core CPI MoM rose 0.4% in April vs. 0.4% in March. Overall CPI YoY rose 4.9% in April vs. 5% in March and 6% in February. Core CPI YoY rose 5.5% in April vs. 5.6% in March and 5.5% in February. Overall CPI YoY increase of 4.9% is the smallest 12- month increase since the period ending May 2021.
The good news is that the YoY Overall CPI continues to trend down. The bad news is that the Core CPI is incredibly sticky and doesn’t really budge. Well, inflation is sticky. It took Japan 5 years to shake inflation in the 1970s and the USA almost a decade (1974 - 1983) to bring down core inflation to below 5%. The pandemic money printing and global supply chain chaos triggered the inflation. We need to take the financial tightening medicine to bring the inflation down as fast as possible so we can deal with more problems down the road. The long term trend of government spending is worrisome as baby boomers are retiring en masse and spending on social security and medicare is only going to accelerate. I saw some really alarming data that I plan to share at some point. But for now, let’s rewatch Prof. Milton Friedman’s take on inflation and support the Fed’s decision to keep the rates high and the money supply tight.
Inflation is like alcoholism. In both situations, when you start drinking or when you start printing too much money, the good effects come first. The bad effects only come later... That's why in both cases there is a strong temptation to overdo it. To drink too much and to print too much money. When it comes to the cure, it's the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later. That's why it's so hard to persist with the cure.
Really like that quote! So true.
Gonna be really painful when the market figures out they aren't taking inflation frightening seriously and longer term inflation expectations and the back of yield curve spikes. Watch HTM losses explode then and the fed won't be able go print to cushion like now without destroying the USD. Very scary.