It’s not that I ever thought price inflation was dead.  But if you listen to most of the talking heads in the financial media, along with the government politicians, you would think that the war against price inflation had been won.  You might even get the false impression that prices were actually coming down.

The rate of price inflation had been going down, but the CPI was still coming in higher than the Fed’s goal of 2%.  And if you have had to make a payment on your car insurance premiums lately, you really know that price inflation has not been defeated.

The CPI numbers came out for January 2024.  The price index rose 0.3% for January.  It was expected to rise 0.2%.  The year-over-year number came in at 3.1%.

Stocks, bonds, and gold all got crushed on the day after the CPI report came out in the morning.  This is because it is bad news for investors who expect the Fed to loosen its monetary policy.  Now they are not counting on a drop in rates any time soon.

You would think that higher inflation would be good news for gold, but the same situation applies to the yellow metal.  In our bizarre world, higher inflation can mean that gold will go down because investors are anticipating tighter money from the Fed going forward.

It’s a House of Cards

This really demonstrated how delicate the bubble economy is.  One big wind can blow down the house of cards.

Investors in the bubble economy aren’t too worried about earnings reports or company financial statements.  They are worried about having access to loose money.  In other words, the dramatic rise in asset prices, particularly stocks and real estate, is built on the Fed’s easy money.  When there is a threat that the easy money will disappear, then stocks go down.

Maybe this move down in stocks will be a small blip and they will continue to go on to new all-time highs in short order.  But I do think this slightly higher than expected CPI report shows the vulnerability of the Everything Bubble.

If a rise in overall consumer prices of 0.3% sends stock prices into a tailspin, what would have happened if it had come in at 0.5%?  Or what if we get another report next month showing that prices went up higher than expected in February?

I can’t say that this is the beginning of a bear market.  However, it shows the fragility of the stock market and the whole financial system.  If stocks are that sensitive to a higher reading in the CPI, imagine what will happen when a new financial crisis hits.