(InvestorPlace) The July numbers from the Labor Department are in. The Consumer Price Index (CPI) rose 5.4% compared to a year earlier. That matches June’s pace, which is the highest 12-month rate since 2008.
Meanwhile, some news outlets are trumpeting the “less than expected” rise in core inflation of 4.3%. But core inflation doesn’t include food and energy prices.
Did you go without eating last month? Did you car stay parked the entire 31 days?
No? Then core inflation isn’t as relevant to your family’s budget.
The latest news this morning is that the Producer Price Index (PPI) rose to 7.8% last month. Forecasts called for 7.3%.
The government continues to blame supply-chain bottlenecks for this inflation. So, it’s all transitory – after these bottlenecks resolve, prices will return normal.
We don’t disagree that resolved bottlenecks will ease some pricing certain pressures, but the trillions of dollars of government stimulus money sloshing around the economy.
And more money is likely on the way.
***On Tuesday, the Senate passed the $1 trillion infrastructure bill… and yesterday, the Senate passed its $3.5 trillion budget blueprint along party lines
As to what was in the infrastructure bill, here’s The New York Times:
With $550 billion in new federal spending, the measure would provide $65 billion to expand high-speed internet access; $110 billion for roads, bridges and other projects; $25 billion for airports; and the most funding for Amtrak since the passenger rail service was founded in 1971.
This generally feels like traditional infrastructure spending – road, bridges, internet buildout…
But what’s in the next $3.5 trillion proposed package is much more of a mainline injection of cash directly to people and social programs.
From the WSJ:
The legislation is expected to include paid family and medical leave, subsidized child care, an extension of an expanded child tax credit, universal prekindergarten for three- and four-year-olds and two years of tuition-free community college…
It would also extend expanded Affordable Care Act subsidies approved earlier this year in the Covid-19 aid package. The plan would broaden Medicare benefits to cover dental, vision and hearing.
This is infrastructure?
Regardless, the bottom-line takeaway is this would be another tidal wave of cash engulfing our already cash-soaked economy.
So, what might this mean for the U.S. dollar?
Well, last month, we highlighted analysis from Jeff Gundlach of DoubleLine Capital, nicknamed “The Bond King."
From Gundlach:
Ultimately, the size of our deficits – both trade deficit, which has exploded post-pandemic, and the budget deficit, which is, obviously, completely off the charts – suggest that in the intermediate term – I don’t really think this year, exactly, but in the intermediate term – the dollar is going to fall pretty substantially, and that’s going to be a very important dynamic…
In the short term, the dynamics have been and will continue to be in place for the dollar to be marginally or moderately stronger.
In the longer term, I think the dollar [is] doomed.
It’s hard to look at this latest $3.5 trillion spending proposal (on top of the trillions already spent) and not believe Gundlach has a point.
