Hey guys, it's sasha, the us inflation report just came out and the all item cpi index for february rose to 7.9 in this video i'll, go through the cpi report and explain its implications and i'll share some insight on what the future will bring because boy this Year is going to be, unlike anything, we have seen that much is for sure. But first, let's talk about this inflation report. The all items index went up to seven point: nine percent. It was up at seven point five cent in january, seven percent in december.

So, on the one hand, the bad news is that inflation is continuing to run 7.9 is historically a very, very high level. It's important to not forget that and it's the highest since january 1982.. In fact, inflation has only been at 7.9 or higher five times in the last 100 years, so naturally you would probably be concerned. The rate at which inflation is climbing also happens to be faster than what we saw in the late 1970s, leading up to that huge 15 rate of inflation in 1980, and even more worrying is the fact that, unlike every other time that inflation skyrocketed the fed at The moment is doing exactly nothing, every single other time that inflation went up, the fed, went and started increasing rates relatively promptly, because the real interest rate that applies to our money in the real world is just the nominal rate.

Minus inflation rate going by the good old fisher equation, and the nominal rate in this case is the u.s fed rate which is still sitting at just above zero. So in real terms, we are sitting here watching our money lose a heck of a lot of value. In the next 12 months, but let's look at the numbers in a bit more detail. The one number that really stands out here is energy, because energy has already been increasing very sharply in recent months.

But look at this. The jump in february was 3.5 percent. That is a lot, because energy contributes over seven percent of the total cpi directly and probably just as much or even more indirectly, through being part of all the prices of everything else that needs energy to be produced and distributed. And it's not surprising that energy jumped in february because gas and oil prices began going through the roof as the threat of russian invasion of ukraine grew, but when the russian troops then entered ukraine on the 24th of february, the prices began skyrocketing.

So the last few days of the month definitely sent things haywire. The problem is that oil has gone way way higher over a hundred dollars in march after spending most of february sitting in the 80s. So the increase we're going to be seeing when we see the same report next month is going to be insane. Gas prices are also climbing in march, and the worrying thing with gas is that a year ago, in march 2021, natural gas prices were actually dropping compared to february 2021.

So when we see the same data next month in terms of the year on year, movement for march, the relative increase in gas prices from this inflation measure perspective will also look kind of ugly. In the last few days, the us has decided to ban the use of russian oil and gas, so the prospect of this situation with high energy costs resolving are pretty slim. Other countries like the uk are also now joining with the bans, and this means that there will be increasing pressure and therefore increasing price on the rest of the global oil supply. Now the united arab emirates has already come out to say that they want opec to increase production, although they seem to have backed down from that last few hours.

The rest of opec reportedly, is not all that keen and quite wants to go and squeeze every last dollar out of this crisis. It seems the good news in this report is that all items, less food and energy are showing some signs that inflation is not accelerating. In february commodities, less food and energy grew by 0.4 percent to drop from the last few months. Car prices are looking a bit better, so is apparel, but shelter is where the really big ugly silent problem really says because shelter's inflation rate it's increasing slowly.

But it's still showing as just 4.7 in the last 12 months and remember that shelter is a huge contributor to the overall cpi. It's about a third of the total, but shelter is also not driven by actual data, which is really bizarre, because pretty much everything else in this report is based on data. The shelter numbers here come from surveys where people express their views on the price of rent and mortgages, and the issue is that, because people tend to be on long-term fixed rates for both rent and mortgages, there is often a significant delay between the real inflation and How much the prices on these things change and when people actually begin noticing on their actual pocket that this is happening, and this is not yet showing up in the report. According to zampa's national index, rent prices are 12 to 14 up in the last 12 months across the united states and remember that they have been quite high for some time.

So it's not just the annual increase that we're not capturing at the moment. We have also not been capturing the annual increases that have also been high over the last few months. So really it's the sum of those that is going to be felt and that's when it can get really bad. According to redfin, the median sale price of homes has gone up by 16 in the last year.

The same issues apply there. Whatever data you choose to look at the real rate of inflation in property seems to be much higher than the 4.7 that this report has. In it about 10 difference, at least, and the problem is, if you add that 10 to the shelter index tomorrow, because shelter is one-third of the total, that means the total overall cpi would go up by over three percent. So the overall index, if you did have that number in there, would be at 11 point something percent, and the big concern is that, eventually that shelter inflation has to come through in these numbers, unless the inflation either magically goes and drops, or that number continues to Be massively underrepresenting reality and the problem is that reality is a lot more important than whatever numbers get published in the long run.

It's almost like. We know this inflation from shelter is coming because it said it's coming to join the party, but we're not quite sure exactly how fashionably late it's going to be. The good news is that the fed has been warming, everyone up to the increasing rates uh in their march meeting, and that is going to be happening on the 15th and 16th of march next week, and the expectation is that they will be increasing rates for the First time, but the official position at the moment still seems to be that the first increase is going to be just a quarter of a percent. So the increase in rate, if it happens as everyone's expecting will still be lower than the increase in this inflation, which is actually being underrepresented.

We think, and every economic textbook out there will tell you that the one way that you can exert downward pressure on inflation is that for rates increased to be significantly above the rate of inflation. So if you increase rates to manage inflation, increasing them slower than the rate of inflation is increasing. Itself is not really going to do anything. The problem is that the fed at the moment is stuck between a rock and a hard place.

A sudden sharp increase in rates is going to have a whole host of other unintended or expected. I guess consequences that can lead to a massive recession or worse and now we have to choose which of the really bad scenarios is less bad, because unless inflation decides that yeah it wants to be transitory. Something has to happen in the next few months. The inflation numbers we're going to be seeing are likely to be somewhat chilling.

We have a commodities crisis going on at the moment where markets in metals are being stocked, as prices are spiking later this year the next wheat harvest is going to come and more than half of the world's wheat just happens to be produced in russia and ukraine. So that food inflation index is going to have some issues later this year and it doesn't seem to be any immediate solution to the massive energy crisis that we are witnessing now. As the united states heads into the summer months, there will be some let off on energy, but the effect in the united states is not as pronounced as it is in some other countries because of the mix of use of energy for heating and reducing heat. During the summer months, but the problem with cold winters is that they tend to come every year and when we're going into october or november later this year, if this situation has not magically resolved itself, the effects could be pretty bad.

However, this war in ukraine has really changed everything, and there is a good likelihood that the us government and the fed will together pursue unprecedented support policies to get people through this very difficult situation. It is quite likely that battling inflation will drop down the list priorities over the coming months and will probably not play as big a role as it would otherwise do and affecting the stock market. But then again this will mean that the inflation spiral that we are witnessing just keeps on doing its thing. While we're watching all the horrific news on tv wages are increasing to offset the higher inflation rates, inflation rates are increased because wages are going up and so on and we'll just have to address that issue when it perhaps is a lot worse.

In a few months time now, 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 really appreciate it and, as always i'll see you guys later, you.