As expected, inflation perked up last month – registering 2.05% on an annual, non-adjusted basis. All things being equal, oil/gas prices alone would have added at least 0.10% to CPI. There wasn’t a big YoY drop as we’ve seen in the previous six months. But, all things weren’t equal.
Core inflation remains elevated at 2.3%, meaning the Fed will have a hard time justifying any further rate cuts any time soon. As we discussed yesterday [see: Inflation Games], the tailwind of lower YoY oil/gas price drops will turn into a strong headwind in December. At current prices, gas is positioned for a 9.8% increase YoY versus the 6.8% decreases it has averaged YTD.
Yes, oil and gas prices could plunge in the next couple of weeks. In fact, I’m betting on it. Typically, plunging oil and gas prices mean plunging stock prices which would, in turn, prompt more Fed easing (Not-QE or QE4.) In short, things are about to get very interesting very quickly.
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