Analyst Wolf Richter at wolfstreet.com did a deep dive into the details of this week’s inflation report and what he found wasn’t pretty. While the headline CPI and even the core CPI weren’t worse than expected, Richter found that the CPI for ‘services’ was a “nightmare”, which “spiked relentlessly” to its highest increase since October of 1982.
In October of 1973 the members of the Organization of Arab Petroleum Exporting Countries, led by Saudi Arabia, proclaimed an oil embargo targeted at nations that had supported Israel during the Yom Kippur War. The embargo led to the price of oil rising nearly 300% in the United States, and the formation of the Strategic Petroleum Reserve (SPR) an emergency stockpile of petroleum maintained by the Department of Energy.
As bad as inflation seems in the U.S., it is much worse in the Eurozone where inflation jumped 9.1% in August - a new record for Eurozone data that goes back to 1997.
Once a company has reached such prominence that its very name becomes the verb for its service, it generally has staying power (feel free to “Google it”). Not so much with video-conferencing platform Zoom. This week Zoom reported its slowest quarter ever of revenue growth, with sales rising just 8% over the past year, sending its stock plummeting (another) 16%.
U.S. stocks gave back a portion of last week’s strong gains after St. Louis Fed President James Bullard, typically a “hawkish” policymaker, appeared to dampen hopes that inflationary pressures had peaked. “The idea that inflation has peaked is…not statistically really in the data at this point,” Bullard asserted in an interview.
When is the bad news of inflation actually good news for investors? It's when an oncoming recession appears likely to push interest rates down and crush problematically high inflation. Recessions have a cleansing effect on inflation, debt, leverage, and excessive exuberance.