The latest Fed speaker, Mary Daly, implied on Face The Nation that the inflationary pressures facing the country are a function of a lack of supply caused primarily by COVID.
Well, right now, Americans are feeling it in their pocketbooks. Everyone’s feeling the rising prices for energy, food, basic services, and that’s painful because they- they aren’t- we aren’t used to seeing it. It’s eye popping in some categories. And of course, that’s challenging, especially for low- and moderate-income families who were- they spend most of their money on food and energy. So, this is really hard.
And it’s also really directly related to COVID. It’s related to the supply bottlenecks, to the disruptions. That we can’t get in the global economy people fully back to work. We can’t in the US get people fully back to work. We have these really anxious to get out there and spend consumers hitting the wall of supply constraints and of course, the prices are going to- to rise. But I don’t see this as a long-term phenomena. And the issue again comes back to, if we can get through COVID, we’ll get back to the normal conditions where we’re more used to and the ones we all want.
No mention whatsoever of the $120 billion being pumped into markets every single month – money that’s sloshing around in virtually every commodity, inflating prices out of proportion to underlying demand. The bubble is especially apparent in energy prices.
The link between YoY gas price increases and CPI have been well documented here and elsewhere. Perhaps the Fed was counting on a decline in the YoY change in oil/gas prices moderating CPI as they’ve continued to insist that inflation was transitory. We should get a better idea on Wednesday, when CPI for September is released.
We’ve focused a great deal this past year on energy, as increasing oil and gas prices quickly permeate nearly every category of production and spending. Note that oil prices have broken out above the top of a channel that dates back 20+ years – which means that the expense of producing and transporting many other categories have also broken out.
Prices need not come back down in order for CPI to moderate. They only need to slow their rate of change. Slowing the ROC, however, doesn’t necessarily leave consumers in a place where necessities are any more affordable.
Gas prices, for instance, are much more expensive than at any time over the past seven years and are also threatening to break out. 
Food price inflation is equally problematic.
While food and gas expenditures only account for 6-7% of income for top earners, they can top 50% for those in lower income categories — meaning most of the pain imposed by the Fed’s policies are felt by those least able to afford it. The bulk of the benefits – e.g. soaring stock prices – are enjoyed by those who least need them.
Mary Daly tells us that “everyone’s feeling the rising prices for energy, food, basic services, and that’s painful because they- they aren’t- we aren’t used to seeing it.” This is dead wrong on at least two counts. Not everyone is feeling it – only those who eat and drive and are barely squeaking by. And, the pain has nothing to do with seeing something unusual. It’s the very real function of not being able to pay the rent or feed your family.
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Futures are off modestly this morning, but then again VIX hasn’t yet begun its pre-opening nosedive.
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