Holy Smokes! not even life insurance prevented the disaster that we just had in CP I mean CPI This is bad. We basically just fully unpriced the March rate cut. Uh, the odds of a May rate cut have been reduced to about a third we've got now. Maybe a full rate cut set for July Uh, and we'll go through what happened with the numbers.

But what I think is most important here is I think the Federal Reserve is gearing up Uh, for we got to get past January which as Goldman Sachs says which I believe as well, could be your January kind of price hike. A lot of personal services, hiking prices in January uh, funeral services, accounting services, financial services, veterinary services, medical care, servic I mean across the board we saw Services really move up in January Which was unfortunate because you know one of the things JP Morgan warned us about was that if we got a read of somewhere around. 3 To4, we would really be concerned about potentially this core Re acceleration of inflation. And that's exactly what we got.

We were looking for 277 on CPI core month over month. That's what we were looking for. We ended up getting 3.9 Well, I shouldn't put it as 3.9 It should actually be written as uh. 39.

There you go. But the point is, that's quite hot. If you annualize that figure just uh, sort of on the monthly basis which which is you multiply it by 12. You don't go exponential, you're at core inflation of 4.68% But what's worse was Supercore.

Supercore came in so hot and is to some extent reaccelerating that some folks are wondering, oh no, Is this exactly what the Federal Reserve fears remember I Throw this all over at Ec.com Check it out Ec.com But what do you have here and what is this going to mean for the election as well? We'll touch on this, but look at this. This is a a chart of Super Core inflation. The Federal Reserve wants to see inflation come down meaningfully. We really want to see super core inflation probably settling somewhere around, uh, higher in the twos.

That way you can get Goods disinflation, drag you down. But what you actually have here is a re acceleration of uh, super core. We have not seen a super core this super bad in two years and I'll tell you, there's almost zero doubt that today, whenever Donald Trump is awake, we're going to be getting some Trump truth social posts about how bad inflation is uh, and how it's essentially getting worse. and at the moment, Donald Trump is going to have uh, a leg up in using that as a weapon.

He's going to use that as a political weapon because of course, why would you not? That's what we're dealing with right now. So the question then is what. Why Is is it possible that this is just a January number? We have to balance that out. First of all, we get seasonal adjustments in January So if this spike is just a January Spike we actually have to have more of a January Spike than we had in Prior months uh or or I should say prior years, right? Because if every January you have a spike well that gets seasonally adjusted away, if this January which was a warmer January you get a larger price hike above your seasonal adjustments, you end up getting this kind of reacceleration.

We also as we went through the actual CPI release, we wanted to see hey, you know, were these numbers hot because of potentially weak seasonal adjustments? Uh and as we were going through the actual item Page by Page over here we compared the red highlights to the orange highlights, the orange or the seasonal, the non-seasonally adjusted numbers, the red or the seasonally adjusted numbers. The numbers were not that different, which is a sign that no, this this was not an issue of adjustments, this was just an issue of broad-based inflation which is not good. Again, it could be hot January Uh, people spending money in January Still more than expected. Uh, but it is going to be a political Hot Potato that Joe Biden has to deal with and I'll tell you after Kamla Harris yesterday suggests, hey, make sure you remember the warrants have been called for House Hack at House Hack.com No, that's not what she said she KLA Harris yest said I'm ready and fit to serve.

A lot of people are scratching their head going. wait this after the Doj report on on a decline for Joe B Wait, Is this the plan? Are we voting for KLA Harris as president? Anyway, sorry that that sort of a little side note. Uh, but but basically CPI is a very important measure which uh, folks will look at for when it comes to voting because inflation really frustrates people. We even had grocery Pric take up again in January.

Now that does come at the same time as GDP is sitting at 3.4% on its current estimate for Q1 the first quarter, the first three months of the year. This is great. This is a great sign that the economy is doing well and moving strongly, but prices are still moving up at an unacceptable pace. And it's a broad-based spread too.

Uh, you can see some more of the details that we've thrown over at Ec.com but it's it's a broad-based spread. It's various different categories, so the question now is what does this mean for the Federal Reserve A Lot of folks come here to see my opinion on the Federal Reserve and I'll tell you I Think here's exactly what the FED is lining up for. Okay, look, March 20th only gives you the January and February CPI reports. That's not enough.

If January is going to be a one-off and hot, you're really going to need three to four CPI reports to argue that January is hot and everything else is not. That's the only way you can argue that so May is going to give you January, February and March. but that only gives you two to balance out one hot. Probably not enough.

you're probably leaning towards SE Uh, June That way, you can get the Summary of Economic projections in March and June. 12th is a really special day because you get the Fomc meeting. So the FED meeting where they make their interest rate decision. You're going to get the summary of economic Pro C S.

and you're going to get CPI the morning of the meeting. So the meeting takes place at 11:00 a.m. California Time Inflation is going to come out at 5:30 a.m. California time.

So uh, you're you know, whatever. 4 and a half hours or whatever beforehand you're going to end up getting or five and a half hours. Whatever, you're going to end up getting the inflation report that morning. Now, some folks say maybe we'll be looking at the July meeting right now.

July is fully priced for a rate cut June's not June's only at about 77% But this would make sense because in June you'll have February March, April and May CPI reports. those four reports could offset a hot January. However, if all of those four reports are hot and they actually reiterate January, you're staying at these higher rates now. City Bank Actually thinks there's a chance the FED might have to start talking about interest rate hikes again, which would be wild, but I Suppose it's possible if you end up getting multiple CPI reports that reiterate a potential acceleration again in inflation.

Now, what's bizarre is we're not actually seeing this in Inflation Expectations: Inflation Expectations coming in substantially lower uh over the last year and not only are inflation expectations coming in substantially lower, but when you look at uh, earnings calls of what we have with Uh with with companies raising prices uh, throughout our actual economy and what they're forecasting, you're not actually getting Uh forecasts for price increases that would suggest growing or or Rising inflation. Uh, here are the year ahead: Inflation Expectations: You can see these here. One year ahead is this light blue number. Three years ahead is the uh, darker blue number You've got stable fiveyear Inflation expectations.

Stable 10year Inflation Expectations which we could look at as either the 10-year Break Even or you could go the fiveyear forward. That's just a fancy way of saying what's inflation five years out and then the next 5? Years From That point, all of these numbers are very stable, very anchored, which suggest when you combine earnings calls and inflation expectations, you suggest that the January number could be a one-off hot figure. It has been a wet winter, but it's been a lot warmer. We haven't had the snow this year like we've had last year, uh, or quite frankly many years before that.

Like, if anybody out there is a skier, you're probably like, man, this has been a warm season. Uh, and it's not great. You know the snow hasn't been that great, so it's a little bit of a bummer. Uh, but what does that contribute to? More service spending? People getting their tax returns done earlier, people getting uh, you know, whatever kind of services they need done earlier in the year than usual and that can lead to pricing pressures Consolidated into January Now that's just an idea.

That idea does align with what Goldman Sachs believes. Goldman Sachs actually pulled off the estimate the best. They thought that inflation would come in at 3.8% it came in at 3.9 for that core figure. So they were closest and as you could see, Nick T suggested here, Uh, well, 38 again.

I I Always kind of move the decimal there when I say this. but anyway, they had a quote. We expect a temporary boost to core CPI from start of year price increases, which we expect to be most pronounced in prescription drugs, car insurance, tobacco. Medical Care Services We did see all of that, but what you also have to remember is housing disinflation still isn't really coming the way we expected it would.

We've been expecting rents to come down, more housing disinflation. Instead, we just had housing contribute 67% to month over Monon inflation a 6% from the 4% we had 2 months in a row. Uh, so you're now seeing those 3mon and 6month numbers move up. Which I WR Here did the FED know I Kind of think the Federal Reserve did know Why do I think that? Well, because Dr Powell refused to talk about the three and six-month inflation figures in the last Fed conference until he was finally backed into a corner to talk about it.

and he's only interested in that 12mon figure which I think that's because he probably knew January was going to come in hot. Now it is a benefit that Jerome pal suggested. Hey, the numbers don't have to be as good as they have been, they just have to keep trending down on the 12 month and that's probably why they're going to wait until June for those first Cuts So this is just going to take some more patience again. We, you know, with a Super Core coming in at 085 which annualize out to 10.2% which is insane.

Nobody sees an an additional 10.2% inflation right now on an annual rate, right? It shows you how extreme January is. It really shows you how bad this report was. but I'll tell you who's it. Ammunition Ammunition for Donald Trump it's ammunition for Donald Trump and uh, this is it.

It'll be accurate ammunition for him. You You cannot tell Donald he's going to be wrong by using this against Biden for the next uh, you know, essentially month or potentially even multiple months thereafter because it's going to push our averages up that stickiness. That is what the FED is most concerned about. The FED is concerned about the shelf right here here that this number is not going to continue to Trend down.

It doesn't even have to plummet like it did here. it just needs to Trend down to like 2 and a half% basically to be around this level over here, pre- pandemic, and any of this shelving bad. Really bad. So uh.

anyway, that gives us a breakdown on CPI it's it was a bad morning. It's a bad report. It's not good. There's a chance it's a one-off but that could be hopium.

Either way, we're probably and realistically now looking at June or July. So in case you're wondering why a lot of stocks are red today, there you go. Oil up to 825 on Brent Gold down Bitcoin dropped a little bit off its 50k. Rough numbers, risk assets selling off today.

Why not advertise these things that you told us here? I Feel like nobody else knows about this? We'll We'll try a little advertising and see how it goes. Congratulations man, you have done so much People love you people. Look up to you Kevin Paffrath there financial analyst and YouTuber meet Kevin Always great to get your take even though I'm a licensed financial adviser, real estate broker and becoming a stock broker. This video is neither personalized Financial Advice nor real estate advice for you.

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