Inflation was expected to “remain elevated” ahead of today’s announcement, but instead it roared ahead to a 40-year high to 8.6% from 8.3% last month.

Groceries are up 11.9% year-on-year, gas is up 48.7%.

For the last few months, we have March: 8.5%; April 8.3%, May: 8.6%.

Analysts were hoping that that the 8.5% in March was going to be the all-time high and we were going to taper from there, but it’s looking like we may not have even topped out yet.

Also, it’s worth noting that prior to 1980, the CPI was simply the cost of a basket of goods. Now we have substitutions, Owner’s Equivalent Rent, and adjustments for quality improvements which, in my mind, are questionable.

Trueflation is reporting just under 10.75% for the last 12 months (https://app.truflation.com/)

It’s going to be painful to reverse this inflation, because debt loads are higher than they were the last time we saw inflation this high in the 1970s and 1980s. Back then the rates for 10-year T bills had to be raised to 15% to finally tame inflation. Now we think that raising them to 3% is going to do the trick? I think people are in for a big surprise.

The next issue is that our Debt/GDP is much higher now than it was in the 1970s. Can you imagine the balance on your mortgage going up at the same time as your interest rate was increasing from 3% to, say, 9%? Another bitter pill.

In March 2022, total receipts for the government were $315 Billion and net interest was $43 Billion. That’s 13.6% of the taxes collected going to debt service. This is at a borrowing cost of ~1.6%. If the borrowing cost increases to 5%, nearly half of our national income will be going towards debt service. In order to snap out of this current inflation, we need to embrace some sort of austerity while simultaneously raising interest rates and slowing the economy down. This is a bitter pill to swallow, and I don’t think we’ll do it.

Global Sovereign Debt

https://www.cnbc.com/2022/04/06/global-government-debt-set-to-soar-to-record-71-trillion-this-year-research.html#:~:text=Global%20government%20debt%20jumped%207.8,1.6%25%2C%20the%20report%20said.

“Even if politicians were to attempt to take the pure austerity route and cut spending programs and let system-wide defaults happen, the economy gets more and more painful, and after a few years, people vote those politicians out of office in favor of politicians promising stimulus.”