CPI: Highest Since Dec 2011

As expected, the oil and gas breakout has pushed CPI to levels not seen since Dec 2011. So far, equities are taking the news in stride – with VIX and USDJPY well-positioned to help prop up futures – to a point.But, inflation at these levels has huge implications for oil and gas prices, the bond market, and equities.

It’s now been 57 days since the 10s2s tagged the trend line connecting its previous lows (and stocks’ previous highs.) At 2.96%, the 10Y is higher than during any FOMC meeting since June 21-22, 2011 — a few weeks before the US debt downgrade.

At the time, CPI was 3.63% and WTI was $94. By Oct 4, 2011 SPX had plunged 17%, WTI had plunged 19%, and 10-year yields had collapsed 80% to to 1.72%.

CPI dropped below 3% in December and has remained below it ever since — despite a doubling of central bank balance sheets, $7 trillion in additional US gov’t debt, and the so-called “robust recovery.”

We’ll revisit some of the charts which first illustrated the problem in the post Oil & Gas, Inflation and Interest Rates: A Delicate Balance or Goal Seeking? The most important comparison to 2011, IMO, illustrates that interest expense is once again exploding as inflation drives rates higher — but, this time with $21 trillion instead of $14 trillion in debt.