This video analyzes the July CPI report, examining whether inflation is cooling down or escalating. The speaker dissects headline, core, and super core inflation figures, discusses their implications for the Fed's interest rate decisions, and explores the impact on real wages and small business optimism.
Headline CPI lower than expected, but core and super core inflation higher: While the headline CPI came in at 2.7% (vs. expected 2.8%), core CPI (excluding food and energy) rose to 3.1% (vs. expected 3.0%), and super core CPI (excluding food, energy, and housing) also increased, indicating underlying inflationary pressures.
Services drive inflation: The majority of inflation stems from services, as opposed to goods. This is highlighted by the analysis of core and super core CPI components.
Real wage growth lags behind inflation: Government-reported real wage growth underestimates the true impact of inflation on purchasing power. Alternative measures using M2 money supply and GDP as denominators show that wages haven't kept pace with these broader economic indicators. Furthermore, average hourly wages in gold terms hit an all-time low.
Immigration policy impacts inflation: The speaker argues that the current administration's immigration policies are decreasing the labor supply, leading to increased wage growth and, consequently, inflation.
Yield curve steepening and market response: The yield curve is steepening, with long-term rates rising faster than short-term rates. This, combined with the CPI report and other economic indicators, has resulted in a positive market response, with the S&P 500 showing significant gains.
