Hey guys, it's sasha, the u.s consumer price inflation report for may has just been published and it is pretty bad all items. Inflation has gone up to 8.6, that's way above consensus estimates of 8.3, and this is the highest level. So far in this inflation spike the highest level since december 1981., after inflation seemed to subside in april. The numbers jumped right back up in may.

I previously mentioned that the april drop in inflation is somewhat artificial because of the way the cpi data works. As a relative year-on-year measure and because of what was happening in the same period last year in the year before, and unfortunately, we are now seeing that exact thing that i was mentioning play out in a very ugly way. For some reason, most people did not expect this. The key components of cpi are now beginning to track in a really worrying direction, indicating that the inflation wage spiral is now underway.

Food at home has gone up by another 1.4 percent month on month and is 11.9 percent up over the last 12 months. Energy is up only 34.6 overall, which is positively surprising, given what we've been seeing in oil and gas prices so far this year. So the big worry is that this could look a heck of a lot worse next month than in the months after gasoline is up 48.7 percent on the commodities of general year. But electricity is still sitting at just 12 year-on-year, although you can see that it increased 1.3 month a month in the last month alone.

The worrying bit is that we are now seeing everything increase this month. This is the first month since november, when at least one category didn't record, a drop vehicles continue sitting higher 12.6 for new cars and 16.1 percent for use, but the real danger, the really big problem is further down. Shelter is up to 5.5 percent. I think it was only 5.1 in last month's data, and this indicates that we are now seeing the increasing rent and house prices that have been increasing for some time now.

Finally start to arrive in the cpi. The situation will likely only get worse from here. Core inflation that excludes food and energy is still somehow sitting at six percent, which is a continuing drop, and i am sure that a lot of people in the media are going to somehow make this into a massive positive news story. But the truth is, from my perspective, that inflation is getting worse and the spiral is tightening.

Now next week the fed will be deciding on rates, and the prevailing statements made by members indicate that they want to do a 0.5 increase with another 0.5 percent coming at the end of july. But the question they will now have to answer is whether that 0.5 is just too slow to stop the overall inflation getting out of hand. There will be a lot of arguments that the energy portion is potentially not part of the real inflation story because of the russian invasion in ukraine. So that is going to be an indicator that perhaps they don't need to take as drastic a course of action as they otherwise would do.

But the question that we'll now have to answer is whether 0.5 is just too slow to stop this inflation getting out of hand. So it will be interesting to see the thinking changes once again in favor of more aggressive rate hikes at some point in the next few days. Although it is unlikely, because i am sure, there's going to be a lot of people talking about the fact that energy is not being driven by the overall inflation spiral and it's just a one-off effect as a result of the war, given this new fad of looking At just the core inflation data and ignoring the overall number, it is now quite likely. I guess that they will stick the course and wait it out.

The huge energy numbers are not surprising when you look at what's been happening with global oil and gas prices. The russian invasion of ukraine means that gas prices have absolutely skyrocketed to over nine dollars per mm. Btu mmbtu by the way is the metric million british thermal unit. In case you were wondering at the beginning of january, the cost was less than four dollars and a year ago, in june 2021, it was just over three dollars, so that is a nice little roughly 200 percent increase year on year and the first 10 days of June are not looking pretty compared to even may so.

Next month's inflation numbers are going to continue looking ugly. We might have a bit of a letter from september to december this year in terms of gas prices, because at that point gas prices went up in the same periods in 2021, when the original threat of the russian invasion did not quite materialize. So when we are lapping those months later this year, if the price is still say nine dollars at that point, if it doesn't go up even further, that will only be a fifty percent increase on the six dollars rather than the 200 increase on three dollars. But if the situation doesn't improve by december, when gas prices fell back down to below four dollars or if the situation gets worse, which could happen if europe, for example, decides to commit economic suicide and go and switch off russian gas altogether, then we might be in For some ridiculous, looking inflation numbers through the winter months and the picture isn't looking much better for oil that is racing to new records trading at over 120 dollars.

Again, we are 77 up on a year ago, which is pushing the energy part of the cpi and indirectly pushing everything else because of the transportation costs, but for those preaching inflation is already going down, it is just going to go and disappear all by itself. Just look at what the oil price did after june last year. It stayed roughly the same in july then fell below 70 in august and stayed around that 70 mark in september, and even in january this year, not all that long ago, oil price was sitting below 80 dollars a barrel, 50 percent different. So, unfortunately, if this war in ukraine is protracted, or at least the economic implications of that war are protracted, even if the conflict resolves, and i really hope that it does that we are potentially going to be seeing some really bad effects for the rest of this Year, which is now becoming more likely, the likelihood is that oil and gas prices will remain at over 50 up year on year through to the end of the year, and this is only going to sustain that upward pressure on inflation every single month when we go And look at the numbers remember about seven and a half percent of the total cpi is made up directly of energy costs and there's probably another seven to eight percent hidden built into everything else.

That is indirectly going up in price because of energy costs as well and talking about food. There has been a recent trend of ignoring energy and food and talking about core inflation instead of the total cpi number, because core inflation is just inflation. If you happen to disregard the cost of energy and the cost of food, and the reason this measure has suddenly become very fashionable is because energy and food just happened to be skyrocketing, so naturally enough. If you go and discard the two things within the cpi index that happen to be exploding in price, then guess what the core inflation number will look better.

I wonder if anybody out there would potentially have some kind of an agenda to maybe try and make inflation. Look a little bit better for whatever possible reason. Like i don't know the government or something crazy like that, and why it is that all the different media, at the same exact time, have magically decided to switch talking about this core inflation figure for no apparent reason whatsoever. That is quite an interesting thought.

The problem is that energy and food are the two most important and critical items that affect those on lower incomes. Stripping them out makes absolutely zero sense. You can go a year without buying a new car and you can stay living in your place. Maybe you inherited the house, maybe you bought it a long time ago.

So you maybe don't have to worry about rental mortgage payments. You don't have to buy new clothes for a year, but the one thing that you will have to spend money on is food heating and gas for your car, and here is an unpopular thought. Those people who are disproportionately affected by these increases are also the ones that are working in those factories producing the consumer, goods and cars that you will then buy at some point in the future, and those people are earning minimum wage. They are the ones working in the call center.

The real living cost for these people is increasing dramatically and they are increasing at a pace that is way way ahead of the cpi index, and eventually those people will not be able to make ends meet, and that means that their wages will have to increase and The increase in their wages will push up the price of those consumer goods will push up the price of the operating. The call center will push up the price of that car food is already running in double digits, but later this year it could get a heck of a lot worse. At the moment, there is a lot of news about ukraine not being aimed to export their grain harvest from last year. These grain harvests are sitting in warehouses and are being blocked by the russian army and the black sea blickade, and russian exports of wheat and fertilizer products are also now not arriving, but in august the next harvest this year's harvest is coming.

Reports are indicating that about 25 of these coming harvest from ukraine were never sowed in the first place, so they are definitely gone. They are not coming and a big chunk of the ones that are growing are likely to not be harvested or spoiled because of the war and on top of the sanctions and bans on trade with russia and everything else, the world is going to have a massive Shortage of barley, corn, rapeseed, weeds, sunflower, seeds, fertilizer and other products, these will have direct impacts in the way of prices on those goods, because there will be less supply globally and we might be looking at famines and parts of africa that are very heavily reliant on These supplies from ukraine, but that won't be the end of the problem. It will be a really bad problem, but it might have an additional knock-on effect on other food groups. Other grains, rice, etc will all see increased demand levels because people will need to substitute the missing harvest for other food categories, and it is looking increasingly likely that food prices are going to rise substantially towards the end of this year.

As a result, and on to that increase in the cost of food, add in the cost of the workers that are processing, managing delivering, etc. All of this food then add on the higher oil price that is now massively increasing the transportation cost. The outlook for the food part of the cpi is really not looking great shelter is an interesting one, because we are seeing a slight discrepancy between house price movements and rent costs. There are reports that inventory on houses being sold is growing and the rising rates mean mortgages are just about starting to become a little harder to get, but this isn't quite coming through in the data.

Just yet the may federal housing finance agency house price index still went up 1.4 percent month, the month of may and 14.7 year-on-year. Although this type of measure can be disproportionately skewed, if the number of cheaper houses being sold reduces because then it is weighted towards the more expensive houses, for example, if people are on lower incomes, are not able to buy a house as easily. The zampa report continues to show that rents are continuing to grow and it doesn't seem to be much of an indicator at all that this is slowing down still sitting at a 13 to 14 mark year on year. In may so, the realistic increases in shelter cost have been significantly above the cpi marker for almost a year now, and even if, even if house, prices and rents do stop growing like everyone is telling you that they're definitely gon na do or even take a slight Dip the cpi index will still have to first start catching up to the growth that it hasn't incorporated.

Yet this is crucial to understand the cpi. Shelter measure will always be lagging behind the real costs. So, in a way we already know what that number is going to go. Where is going to go in terms of direction, and that way is up.

Unfortunately, and shelter has been the one measure that has really been holding inflation below 10 percent over the last three months, because shelter is one third of the total index just think about that's a huge proportion. So if, for example, shelter was to go up a bit closer to that 13 or 14 mark that we're really seeing an increase in property costs in the last several months, if shelter, for example, hit 10, then everything else remained the same. In that case, the total cpi would also be over ten percent, so inflation has said yet another record and is now at eight point, six percent, a level that we haven't seen in almost 41 years. The macroeconomic factors are indicating that inflation is not going anywhere soon and has the very realistic potential to move into double digits in the coming months, and the fed is continuing to react slowly on rates.

The second half of this year could see some turbulence. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really appreciate it and, as always i'll see you guys later, you.