Inflation Surges As Trump Optimism Collapses

Posted by on January 18, 2017 1:56 pm
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Hold on to your wallets Inflation climbs in 2016 at fastest pace in 5 years, CPI shows

Inflation rose in 2016 at the fastest pace in five years, as rising rents and medical care and higher gas prices put a squeeze on consumers.

The consumer price index jumped 0.3% in December, the government said Wednesday. That matched the MarketWatch forecast.

A string of sharp gains since late summer helped drive up inflation by 2.1% for the full year, marking the biggest increase since a 3% gain in 2011. Americans are pay more for fuel, housing and doctor visits, offsetting the biggest decline in grocery prices in years.

Is that bullish? In our view, it is somewhat irrelevant. I believe we are witnessing complex inflationary/deflationary dynamic that will play out over the next few year. While we will see an inflationary environment is real assets, we should see a deflationary (debt driven) spiral in most financial assets. Including an increase in interest rates.

In the meantime, Trump-rally optimism is fading fast, Citi says

The index aims to capture investor sentiment by measuring the number of Bloomberg News stories containing the keywords “bullish” and “bearish.” The index is correlated to risk assets, as well as Citigroup’s Global Risk Aversion Macro Index, or GRAMI, the analysts said. Occasionally, turning points in the NISI precipitate moves corresponding moves in stocks, they said.

In other words, what President-elect Trump has proposed would be very difficult to implement. Not impossible, but it will take an enormous effort and quite a bit of time. Plus, the final results are unpredictable and highly volatile.

Just as the chart above suggests, investors are beginning to see that reality.