Last month we wrote that peak inflation as measured by the CPI was not in sight. We saw further evidence in today’s reported 7.5% CPI figure. Producers have yet to fully push through price increases for goods and services for calendar year 2022 across categories.
In addition, we keep harping on the BLS’ owners’ equivalent rent (“OER”) metric which has a 24% weighting in the CPI calculation but has yet to show any of the price increases that real world rental data show. Thus, OER ought to increase once real world data starts to flow into the BLS’ bogus survey methodology.
Consumer spending will eventually grind to a halt as prices continue to increase, knocking Real GDP negative at some point this year, which will put us firmly in stagflation territory. Our view is that Real GDP is already negative, but that the Federal Government underestimates the GDP Deflator when applied to Nominal GDP, thus over-reporting Real GDP.