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Economics / Inflation Apr 01, 2023 - 06:09 PM GMT

By: Nadeem_Walayat


The primary driver for stock prices is Not Innovation, Disruption or even GDP growth (though it is part of the soup), No the Primary driver for stock prices is INFLATION! It's why Turkish stocks (before this weeks killer Quake) were racing ahead despite persistently high Turkish inflation rates of as much as 85% during 2022 as they experienced their own version of the Crack up BOOM!

INFLATION! That the politicians and their central bank minions have convinced the masses is good, inflation is necessary for the lifeblood of the economy instead Inflation ensures that Wage slaves will get poorer all whilst the rich get Richer, they don't have to do anything just have the governments and central banks keep printing money whilst they are invested in assets as they watch inflation do it's compounding magic!

This is the smoke and mirrors inflation graph that gets peddled out each month that the governments and central banks want people to focus on.

Is the inflation pain over!

Not so fast! The 10 year inflation graph shows why the inflation pain is only just beginning! And this is before we consider the fact that they have fiddled the inflation indices to such an extent that it probably under reports REAL inflation by 50%! Take CPILIE and double it and that is the real inflation rate!

Imagine what this graph now looks like when allowing for REAL inflation and then you have an inkling of the PAIN that the masses are experiencing which is NOT going to lessen even if CPI LIE falls to below 3% which I doubt it will. but nevertheless it won't make any difference as the 1 year inflation rate climbs higher and with it will the compounding PAIN that every worker will experience as I warned over a year ago that Western economies are marching to civil unrest where strikes turn to ,mass protests which turn into civil unrest due to the building stress of increasing inflation pain all whilst the con merchants in the central banks peddle the line that inflation is falling, Instead the mass of workers feel the pain of RISING PRICES and other STEALTH INFLATION, such as cutting PENSIONs on either the growth front or payment front in REAL TERMS. Peoples incomes are being squeezed all whilst governments paints the false narrative of Inflation being back under control when the truth is the exact opposite which will push the masses towards revolt where the prime time for such events are the hot summer months. We are likely to see spikes in civil unrest take place every summer across the western world that ultimately could even bring governments down!

Virtually every year the UK government chips away at Britains pensions such as the recent announcements to FREEZE the lifetime pension allowance when inflation is running rampant! That is at least a 15% STEALTH TAX RISE! And now their are the likes of the Resolution Foundation peddling the narrative of capping ISA's to a total of £100k because poor people don't save much in ISA's and thus the cap would raise a lot of taxes this despite the fact that the Resolution Foundation themselves are dodging tax by registering their 'thick tank' as a charity so they can AVOID PAYING TAXES! What does shuffling paper in offices have to do with helping the poor and needy? Have they ever directly helped a single poor person in need? I doubt it!

And it's a lot worse than that! because the state pensions for most nations are giant PONZI SCHEMEs! US, UK, France. Italy, Germany, virtually all nations state pensions are ponzi schemes where today's workers pay for today's pensioners, there is NO PENSION FUND! Eventually the ever widening gap between workers contributions vs retiree pension payments is filled by printing money resulting in INFLATION, that governments are panicking to try and reign in prompting demonstrations as are taking place in France right now where the likes of Covid is being seen by some in power as a means of cutting pension liabilities given that across Europe there are now several million fewer pensioners than there would have been without covid, though a pinprick to the pensioner cull that they would be content to experience.

This is why stocks bear markets are TEMPORARY because Inflation os PERMANENT and EXPONENTIAL!

Back to what is going to happen this week to CPLIE and how it will impact the stock market. Well the monthly data shows that we can continue to expect falling CPI inflation on the annual inflation index i.e. Jan CPU Index 2022 was 282.6, vs 280.9 that's 0.6% leaving the indices, and there will be a marginally greater departure for Feb data (released March) of 0.7%. with the big departure of 1% coming for March data released in April that times well for a rally into May because after that Inflation falls are going to stall and could even tick higher during April (May release). So Inflation should continue to provide upside momentum for the next 3 releases than it's going to get tough especially if the Labour market remains strong as Fridays data illustrates.

Looking at the inflation spectrum where despite the 12 month continuing to trend lower the 6 month rate has already bottomed and is expected to turn higher for January data, however for the Fed to get to it's 2% target the 6 month rate would need to go negative which is not happening, in fact it's basing above 1% which implies annual CP LIE is going to find it difficult to nudge below 4% even on a temporary basis let alone achieve 2% in 2 years time. Meanwhile the 10 year shows Inflation pain is going to continue to climb higher to above 30%, that is REAL PAIN that people will experience which is NOT reflected in the annual rate, to get a taste of what this means imagine if the annual rate instead of falling to under 5% rose to over 9%. INFLATION PAIN that is invisible in the statistics that the clown economists focus upon. but it WILL have REAL WORLD consequences!

The bottom line is that regardless of what the CPLIE annual rate does over the next 3 months (declines expected). real inflation pain is NOT diminishing but instead INCREASING and thus implies that those banking on Fed rate cuts anytime soon, the so called Fed pivot are gong to be disappointed, instead post the current 3 month window annual inflation could start creeping higher and so we could so higher Fed rates being priced in to well above 5%, maybe even 6%.

This article is an excerpt from Stock Market Counting Down to Pump and Dump US CPI LIE Inflation Data Release that was first made available to patrons who support my work.So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $5 per month.

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By Nadeem Walayat

Copyright © 2005-2023 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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