Stagflation is on the horizon

Today, I am just quickly going to comment on the July inflation figures. Forecasts based on the supply chain shock scenario we envisaged at the end of July seem to have performed the best.

This is encouraging after last month’s (general) forecasting failure, but our model still needs work.

The Consumer Price Index, or CPI, rose by 0.1% , core inflation by 0.2%, and super-core inflation by 0.2% month-over-month in July. The year-over-year inflation war is 3.4% (3.5% in June). Here are some specific numbers from the July report:

These are worrying figures, because, like I have explained previously, when the first four keep on racking up with such a speed, the commodity price universe will eventually and unapologetically follow.

I also do not fully understand how gasoline prices are down 2.9% in July, according to the Bureau of Labor Statistics, while the national gas average price has risen from $3.8761 a month ago to $4.0360 now. Well, in any case, we can expect gas prices to rise further, as the 3-2-1 Crack Spread hovers near ATHs.

In other words, the conflict in the Middle East continues to dictate the path of inflation, and like I noted yesterday, it is not looking good. Therefore, we need to be prepared for a worsening inflation picture and slowing economic momentum, which can become recessionary in the coming months.

Stagflation is approaching.

Tuomas

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