I’ve been warning for weeks and weeks now that inflation was going to be a major problem for the financial system.

Yesterday we finally got a taste of it. The official inflation measure for the U.S., the Consumer Price Index (CPI), skyrocketed to 4.2% year over year. Core CPI, which is the most essential component, recorded a year over year jump of 3%.

That doesn’t sound much, but you need to consider the ENTIRE reason that CPI exists is so the government can DOWN-play inflation. There are endless gimmicks used to massage this number as low as possible.

For instance, the CPI…

Doesn’t include food or energy inflation, despite the fact those are two of the most necessary goods for consumers to survive. Weighs the cost of goods and services geometrically instead of by their actual price. Uses substitution or replaces items that it measures if they become too expensive.

And more!

Bottomline, the CPI is designed to HIDE inflation. And despite all of the gimmicks and games played by the government, the official inflation number still clocked in at 3%.

This is the highest core CPI since 1982.

To put that into perspective, at that time interest rates were at 19% as the Fed was desperately trying to control inflation.

This time around, the Fed has rates at ZERO while printing $125 billion in new money per month.

To make things even worse, the Fed is in complete denial that inflation even exists. Various Fed officials surfaced yesterday to argue that the spike in inflation is transitory i.e. the Fed doesn’t need to do anything about it.

The White House is also in denial about this problem, claiming that if “base effects” were removed, CPI would only be 2.1%. Bear in mind… as I stated a few paragraphs above, CPI has got dozens of gimmicks built into it to HIDE the real inflation levels.

So, we’ve got both the Fed and the White House in complete denial about this problem. Which means…

Inflation is going to rage and rage.

What does this mean for stocks?

I’ll explain all of that in tomorrow’s article.

Poster Comment:

Stocks were hammered last time when inflation ravaged us in 1979-80. Half our corporations are Zombies meaning they die when interest rates rise. If the FED delays interest rate hikes that just means a more rapid decline in the value of the dollar and dramatic price increases both for imports and also for food exports as foreigners (China) will buy all our food with cheap dollars. Foreigners are beating inflation by dropping over $200 billion into real assets in the US. Those assets will increase in value as the dollar tanks.