Inflation and Energy Prices: Historical and Current--July 2022

Talked to a fellow about 14% mortgage rates in our early home purchasing lifetimes (18% was the worst in 1981). Below is a custom graphic that tracks CPI inflation and mortgage rates (Freddie 30-year fixed). Millennials have no idea----they were born after this time period----we might as well be talking about dinosaur time periods.

 

How long will we have the current inflation problem? Clearly, Energy and to a lesser extent food are the major causes of the inflation we currently have. (see top graphic below). Energy prices for 12 months are up 32.9% in a worldwide event.


Annual inflation is 12 individual months combined. As a new month's data is released, the oldest month drops off. Think of it as being 12 dominoes, a new one comes on, every other bar shifts left pushing the further-est one on the left drops off.

On the lower 2 graphs, note the two tall red bars, it will take 8 months before these start to fall off. When they do, inflation will drop off provided no further new tall bars come on.

 

Core inflation is the lower right green bars. If we can get more than 0.3 months, it will go a long way in helping the Fed in its fight against inflation. Beat inflation and mortgage rates come down.

Finally, how did inflation "quietly" come about? Below is an experimental graphic under development. The bars are monthly (left axis) while the red line is the 12-month rolling "average" (right axis). The public focuses on the right axis. Note two tall blue bars are March 2022 and June 2022.

 

The above two tall blue bars of March 2022 and June 2022 are directly traceable to the below red bars that are in the Energy inflation category. It will take 8 months before the tall red bars (dominoes) fall off.

This too shall pass but the Fed must maintain its fight against inflation to ensure and project to the bond market that it will tackle inflation. Perceptions become reality.


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