CPI figure in the US will be published today

CPI figure in the US will be published today. It is already expected 7.2% e.g the highest the highest since 1982 but this Is already priced in the stock market. But when the CPI figure comes out higher than this there is very good chance there will be a sell off in the stock market especially high growth stock.

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The Controversy
Originally, the CPI was determined by comparing the price of a fixed basket of goods and services spanning two different periods. In this case, the CPI was a cost of goods index (COGI). However, over time, the U.S. Congress embraced the view that the CPI should reflect changes in the cost to maintain a constant standard of living.1 Consequently, the CPI has evolved into a cost of living index (COLI).

Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket.2 The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI.

John Williams, a U.S. economist, and analyst of government reporting, prefers a CPI, or inflation measure, calculated using the original methodology based on a basket of goods having quantities and qualities fixed.3

I would say US inflation is above 10%, however current CPI calculation lowers this as they also take into account quality change, aka they measure price of Beaf steak last year and then compare it to lower quality beef this year as due to consumer switching to lower cost substitution.

I am not sure about rest of EU.

But Petrol/Diesel prices are up 20-30%.
Utility Gas 50-70%
Utility Electricity 30-40%
Meat 20-30%
Milk - Diary products 10%+

Yet they claim EU has 5.5% inflation.

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Yeah printing 80% of all money supply in 2 years might do that. We all know the inflation numbers are much higher than stated. I personally put the cost of capital per annum at 15%, previous I would have used 3%.

So unless investments are growing at 15% min I’m actually losing the value of my capital.

What has the S&P done over the last 5 years, oh yeh 15% CAGR haha.

Inflation climbed faster than expected in January at 7.5% Feb 10, 2022 CNBC Television
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There was a blip in the stock market today early in the stock market opening today. But it recovers slowly later in the day.

I can’t find the article unfortunately but I read that US consumers/citizens are still continuing to increase the overall rate of mortgage loans and auto loans even with knowledge of inflation on the rise. I think I first found the reference because of the Tesla $100T thread :grinning:

Loan delinquencies (always find that a weird term in financials) are not increasing and fairly flat indicating many Americans have plenty of cash/savings stored and they want to unleash them…

Could this be due to inflation. I mean if you borrow 100k today and your salary increases with inflation at a minimum, say if inflation was 10%, your borrowing of 100k today is equivalent of 90k in a years time today.

It’s a gamble but not a terrible idea.

27%*. Still a lot of course. But while M1 has increased, M2 has proportionally shrunk. There just isn’t 5 times as much money circulating like you or many others claim.

Pretty much. A loan with interest rates lower than inflation is the closest you’ll get to free money.
Boosting consumption now, and pay it back later for cheaper than it is actually worth.

But the aggregate demand of borrowed money drives an upward pressure on consumers’ loans/mortgage’s rate, independently from the inter-bank rates, allowing a market correction of money’s accessibility. It’s essentially a good thing :person_shrugging:

This is a hidden tax we all pay. I cannot see how this is a good thing.

Up from $4T to $20T for M1

Unless I’m missing something, M2 is up too from $15T to $22T

Sources:

Yes, as I said, 27% of M2 supply “printed” the last couple of years. Far less than the 80% advertised. Of which, 2T would have been “normal” economic growth, so “only” ~20% of abnormal printing.

It is still very high mind you. But so much lesser than the common thinking of money printing, which doesn’t capture the necessities of our world’s economy in the last couple of years.

I pointed that out just to stop the advertisement of wrongly “scary numbers”. Of course this elevated growth of M2 does translate to some higher inflation, but it isn’t the end of the world or anything. And the relative shrinkage of M2 to M1 pretty much doesn’t correlate to inflation figure either.

Yesterday initially, when the CPI figure was aanounced, the market response is not that bad but suddenly a few hours later and close to the closing hours the market down around 2%.

My thought: Because the FED came out yesterday and said they were going to do the interest rate hike of 0.5% in March (e.g higher than previously anticipated e.g., 0.25%) and they might increase interest to 1% in July. That is what scared the market imo.

Do not foget the FED January meeting minutes will be published on Wednesday February 16, 2022.

There might be another market mover just like what it did last month in January. Just remember when December FED meeting minutes was relesed at the beginning of January that was what triggered the market correction.

Let see what happen in this coming Wednesday February 16, 2022.