Consusumer Prices Rise 1.1%: Second Highest Jump in 26Years

Good Morning

Well this morning is all about inflation,inflation, and more inflation! Stocks are mixed. The DOW is up about 100 points on Wells Fargo relatively strong earnings and dividend increase. The DOW has again been fluctuating violently so far this morning.

One of the problems we have right now is because sentiment is so bad, everyone continues to "sell the rally", especially in financial stocks. During the bull market the mentality was always "buy on the dips".


We are oversold, so a bit of a bounce on the Wells Fargo news may send stocks higher today.

OK, lets get to the inflation nightmare that was reported this morning. Consumer prices were up 1.1%. This was the second highest surge in inflation in 26 years!


Here are the numbers from the AP:

"AP

Consumer prices jump 1.1 percent in June

Wednesday July 16, 9:52 am ET

By Martin Crutsinger, AP Economics Writer

Consumer prices surge in June at 2nd fastest pace in 26 years, reflecting soaring energy costs
WASHINGTON (AP) -- Consumer prices shot up in June at the second fastest pace in 26 years with two-thirds of the surge blamed on soaring energy prices.

The Labor Department reported that consumer prices jumped 1.1 percent last month, much worse than had been expected. Energy prices rocketed upward by 6.6 percent, reflecting big gains for gasoline, home heating oil and natural gas.

The big rise in prices cut deeply into consumers' earning power with average weekly wages, after adjusting for inflation, dropping by 0.9 percent in June, the biggest monthly decline since 1984.
The 1.1 percent June price increase was the second largest monthly advance in the past 26 years, surpassed only by a 1.3 percent gain in September 2005 from a jolt to energy costs after Hurricane Katrina.


Over the past 12 months, consumer inflation is up by 5 percent, the largest year-over-year gain since a similar 5 percent rise in May 1991.

Food prices also showed a big increase in June, rising by 0.7 percent, more than double the 0.3 percent increase of May. Vegetable prices shot up by 6.1 percent, the biggest increase in nearly three years

Core inflation, which excludes energy and food, showed rising pressures too with an increase of 0.3 percent in June, up from a 0.2 percent gain in May and the biggest one-month rise since January.

This increase reflected a 4.5 percent jump in airline ticket prices, the biggest one-month rise for airline fares since March 2000."


Final Take:


The market may be up a bit today as Wells brought some relief to a badly beaten up sector. This will be temporary of course. I don't have enough fingers to count the number of financial rallies that ended up in flames this year.

This inflation number is bad guys. Bloomberg is reporting that wages decreased .9% when adjusted for inflation in June. This is an annual pace of almost 10%.

Soaring prices combined with dropping wages equals an economic catastrophe. The Fed can't raise rates short term, but as these hot inflation numbers continue to pour out each month, they will be forced to raise rates.


Bottom Line:

Rising rates are a must in order to stabilize the economy. There is no other choice, and if inflation continues to rise at this amazing rate it may happen sooner than we think.

Bernanke testifies again today and I will be interested to see how he reacts to this hot inflation number. We also have the Fed Minutes this afternoon.

Both of these events could cause fireworks. I will hop on tonight after we hear the latest babble from the Fed.

Hold on tight folks! We could have another wild ride today.