Today's CPI inflation report shocked Wall Street and the nation with a significantly higher than expected print. Pollyannas everywhere are painfully learning that there's no magic cure. There's no easy way out.
After several years of excessive federal spending, regulating, taxing and money-printing, the highest inflation in 40 years is deeply embedded in the economy and it is spreading. The only significant decline came with gasoline prices.
Overall, the topline CPI came in at 8.3% for the year — food up 11.4%, even energy is still up 24%. Electricity is up 16%; natural gas 33%; new cars 10%. Even with the recent drop, gasoline is still 26% above a year ago. Rent is up 6.5%. Overall, services are up nearly 7%. Core goods prices are up 7%. Used cars are up nearly 8%. The so-called core inflation rate, omitting food and energy, has risen 6.5% annually over just the past three months.
In terms of broader measures, the Cleveland Fed's median CPI increased to 6.7% year-on-year and the 16% trimmed mean, which chops off the highest and lowest 8% of outlier prices, is up 7.2%. The Atlanta Fed's wage tracker is up 6.7%, but real wages had their 17th-straight negative month. In other words, middle-class working folks are getting clobbered, absolutely clobbered. They're working more but buying less.
Federal Reserve Chairman Jerome Powell speaks during a news conference at the Federal Reserve Board building in Washington, Wednesday, July 27, 2022. (AP Photo/Manuel Balce Ceneta) (AP Photo/Manuel Balce Ceneta / AP Images)
Around the kitchen table — grocery prices, home heating, air conditioning, electricity, baby formula — all these price hikes are killing the middle class and then we have the unseemly sight of James Taylor serenading the White House in a bizarre celebration of Mr. Biden's "Inflation Reduction Act." You can't make this stuff up.
Meanwhile, the stock market has fallen nearly 1,300 points. The 10-year treasury rate has jumped over 3.4% and the 30-year fixed mortgage rate stands at 6.5%. Those are a full percentage point above where they were a month ago. Those are the facts. What does this all mean?
The Federal Reserve will be much more aggressive in hiking their target rate and draining excess cash in the economy. They ought to raise the Fed funds rate a full percentage point next week and another percentage point in November and then a third percentage point in December in order to stop the inflation tide. This is a painful wage-price spiral. We haven't seen one of these for four decades.
LPL Financial chief global strategist Quincy Krosby and Sarge986 president Stephen Guilfoyle discuss if the Fed can reduce inflation without initiating a recession on ‘The Claman Countdown.’
There is another approach here that would help save America from a truly deep recession. Move to the supply side. Cut tax rates. Open the fossil fuel spigots. Stop the regulatory stranglehold on business. Start rewarding success instead of punishing it. Implement workfare to bring over 4 million people back into the labor force.
Unfortunately, the big-government socialists in the Biden administration don't understand any of this. Their woke progressive thinking has done great damage. It's an utter failure. The good news is Americans know this. That's why the cavalry is coming.
This article is adapted from Larry Kudlow's opening commentary on the September 13, 2022, edition of "Kudlow."