‘A Shocking Number’: Experts React to 6.8 Percent CPI Inflation, Highest Since 1982

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The SPDR S&P 500 ETF Trust traded higher by 0.8 percent on Friday morning after the Labor Department reported a 6.8 percent increase in the consumer price index (CPI) in the month of November, the fastest inflation growth since 1982.

The headline CPI rose 6.8 percent in November, exceeding economist estimates of 6.7 percent and marking the highest growth rate since June 1982. The CPI was up 0.8 percent on a monthly basis.

Core inflation, which excludes volatile food and energy prices, was up 4.9 percent in November, in-line with economist estimates.

Energy prices were up 3.5 percent month-over-month and 33.3 percent compared to a year ago. Used car prices were once again a major inflation driver in November as well. Used car and truck prices increased by 2.5 percent in November and are up 31.4 percent over the last 12 months.

The latest CPI inflation reading comes after the Labor Department reported last week that U.S. wages grew 4.8 percent year-over-year in November. Unfortunately, the latest inflation numbers suggest prices are rising faster than wages for many Americans.

Voices From the Street

Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said November’s CPI reading is “a shocking number” and a sign that rising inflation is going to force the Fed’s hand.

“Specifically, the Fed is going to have to increase the pace of their tapering plans—potentially reducing their buying twice as quickly, down by $30 billion/month instead of $15 billion/month—and then look to either balance sheet reduction (i.e., outright selling of bonds that they’ve already purchased) or interest rate hikes, in order to combat inflation,” Zaccarelli said.

Anu Gaggar, Global Investment Strategist for Commonwealth Financial Network, said the November CPI number will reinforce the Fed’s likely decision to accelerate its tapering process.

“With the strength in the economic recovery, it is time to take the crutches away,” Gaggar said.

George Ball, chairman of Sanders Morris Harris, said the market was already anticipating extremely high inflation numbers, so Friday’s reading was no surprise.

“Friday’s elevated inflation reading means that overweighting a portfolio to technology stocks will be an increasingly bad idea, as the Federal Reserve may be forced to tighten policy faster-than-expected to offset inflation and a higher interest rate environment tends to make tech stocks less attractive,” he said.

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