Inflation, inflation, where art thou, inflation? (Details below.) And why markets are still rising...

Over the last couple of days we have had a lot of headlines concerning inflation. The first arrived on Tuesday when CPI continued to rise and reached a 13 year high (graph below). The second set of headlines came on Wednesday when the Fed (and Powell in particular) announced their belief that this was temporary and would ultimately come back down to more reasonable levels. As such they are still a "ways off" from reducing asset purchases and changing monetary policy.

They could be right. Check out a recent headline (and graph) from the WSJ about lumber prices which were on a tear last year and into the early part of 2021:

Lumber Prices Are Way Down—but Don’t Expect New Houses to Cost Less

Futures prices have dropped by about two-thirds since May, helping builders and do-it-yourselfers

This is called mean reversion!

For a long time we have been taught to think that CPI is not a problem and that there really isn't much of a threat of massive price rises. Let's drill down on a more granular level, what has caused the massive rise in CPI over the past year? But first,  here is the CPI graph:

Now, ask yourself if you have been impacted by these price rises?

I would say yes, we are severely impacted by these price rises. Given it's summer vacation time, anyone who has tried to book an airline ticket, a hotel room or a car rental knows that prices are much higher than they have been. Anyone dealing with any moves, home renovations, upgrades or purchases are also feeling the pinch.

I hope Powell and the folks at the Fed are right, but I fear that they may be wrong. The good thing is that markets are still reacting positively. I wrote about this a month ago during the previous 13 year high release in May and tried to guess why markets were still reacting positively. Here goes:

https://thrivingwithinterest.blogspot.com/2021/06/high-inflation-yet-stock-market-up.html

Let's see how this all plays out...