Stephanie Pomboy: Don't Let The Latest Inflation Data Fool You, It's Still A Threat

**Adam Taggart** (0:05)
Welcome to Thoughtful Money. I'm Thoughtful Money Founder and your usual host, Adam Taggart, here, welcoming you back for take two of today's interview with Stephanie Pomboy. Stephanie, how are you?

**Stephanie Pomboy** (0:16)
I'm better. Thank you so much, Adam, and thank you for your patience with my apparent litany of technology problems today.

**Adam Taggart** (0:25)
You know, you talk about kind of the technology, God's not liking you very much, and I think they took this as an opportunity to flex their muscles and show you how much they like to disrupt your life. But look, Murphy's Law, what can go wrong and who go wrong. We can't control that, but we can control how we react, so we're soldiering through. If you watch the earlier and aborted one of this, welcome back. This one is not live. It's being recorded here just between Stephanie and I, so we won't be taking in the Q&A now. But as Stephanie has very generously agreed to do, when she comes on next in two weeks, we might run a little bit late, but we'll certainly take a lot more questions from the audience. So Stephanie, thank you again for soldiering through all this. We had two interrupted attempts by technology to try to get you to give your latest thoughts on inflation, and just to summarize very quickly for folks, you had said, look, the markets took last week's only mildly softer CPI data as a reason to just unleash the animal spirits, and all of a sudden folks aren't nearly as worried about inflation, as sticky inflation as they were. You think that may be a mistake. Why?

**Stephanie Pomboy** (1:40)
Yeah. Thank you. Well, first off, the headline number at four-tenths annualizes to 4.8 percent. That's two full percentage points above where it was running in the 12 months prior. It's also 2.8 percentage points above the Fed's target. So that hardly struck me as cause for celebration.
And the real reason, obviously, the markets were excited was the core number, which was a little softer. But I thought it was kind of interesting that on the same day, the market celebrated this slightly cooler core inflation print as if they live in a world where no one needs food or energy. Oil prices hit $80 a barrel. So whatever cooling there was in the energy component, it obviously is temporary. Admittedly, oil prices are back down to like $77 a barrel now. But I think it's noteworthy that a lot of smart people have been forecasting that oil prices would head lower, and they have refused to do so despite a global slowdown in economic activity. And on the same day that this CPI number came out, a ceasefire deal announced in Gaza, and then a new administration that comes in and promises to end the war in the Ukraine. So all those things would seem to be reasons to send energy prices lower, and in fact, they are trending in the other direction. So long story short, I think that the markets were wildly amiss in terms of celebrating this or spiking the ball in the end, so that inflation has been vanquished, and now the Fed has free rein to continue on its way with rate cuts. And so I anticipate that the massive rally we saw in bond yields on this CPI number and the attendant rise in equity prices associated with it, will probably reverse in the days and weeks to come as we see those higher energy prices start to creep into the gasoline price, and eventually that will be reflected in the inflation numbers going forward. It also bears note that if you take it, if you overlay the CPI chart with the CPI, I'm sorry, you overlay the overall CPI chart with oil prices, or even the core number with oil prices. Oil prices affect everything. So even if you're stripping energy from the CPI, higher oil prices will drive up the price of everything else. We know that, and yet, for some reason, we have this practice of assuming, well, it's just oil, therefore, it doesn't matter. Outside of labor, it's the number one input into everything we consume.

**Adam Taggart** (4:36)
Hey, Steph, in that, I don't have that overlay chart, but when you do look at it, are oil prices the leading indicator between the two?

**Stephanie Pomboy** (4:46)
Yes. In fact, if it's okay, I'll send you that chart that I have, and it lags the energy component to show that it's about a six-month, nine-month lag between energy prices and when they actually pass through into the CPI. So it's one thing that people don't really focus on because we become so accustomed to excluding the volatile food and energy components. But again, even if you're not talking about gasoline that you're putting in your tank or using to heat your home, you buy a box of cereal, and 50% of the cost of the box is cereal. That's probably my number, but a large percentage of the cost of the box that you purchase is energy prices, whether it be the energy to actually till the fields and then create the product and then put it in the package and the lining of the box, that plastic sleeve has oil in it and then getting it to the store and et cetera, et cetera, so on and so forth. So long-winded.