Is the current increase in inflation “transitory?”  The answer will greatly impact markets.

Yesterday’s data continued to suggest an economy is in the nascent stages of inflationary growth.  Further statistics from the NFIB (National Federation of Independent Business) stated 40% of owners indicated they are rising selling prices in May, the highest in monthly data back to 1986 and up from 36% in April.  Furthermore, a record 43% said they plan to boost prices in the next three months, an increase from 36% a month earlier.


And then there is labor.  According to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), job openings rose in April to a fresh record high of 9.3 million far surpassing the previous month record of 8.3 million.  Vacancies were broad based.

Moreover, a record 4 million people voluntarily quit their job in April.

The number of vacancies exceeded hires by 3.2 million, also the most on record according to the Labor Department.

The Labor Department stated “enhanced unemployment benefits have reduced the labor pool which is creating shortages and rising wages.”  The Labor Department further stated a “structural change may be occurring in the markets given that wages gains are difficult to reverse.”

The economy is experiencing both cost push (wage) and demand pull (product) inflation.  The last time such was present was in the 1970s.  In many regards the similarities are uncanny to that era with perhaps social policy as the most prevailing.  LBJ commenced the “Great Society Programs” which most will state was a major catalyst for the inflation of that time.

As widely noted, the current Administration is the most progressive in at least three generations.

Tomorrow the CPI is released.  Consensus is expecting a 0.4% overall increase and 0.5% gain ex food and energy.  Year over year consumer prices are expected to rise 4.7%.  How will this data be interpreted?

The five-year, five year forward breakeven rate—a key bond market indicator that measures bond trader’s projection for average annual consumer price increases for the five years beginning in 2026—rose to a eight year high of 2.55% in May.  It has declined nominally to around 2.46%.  The Fed actively targets this rate and if this yield again rises, the prevailing Fed narrative that inflation is transitory will be challenged.

Commenting about yesterday’s market activity oil closed over $70/barrel for the first time since October 2018.  Equites were quiet and the 10-year up 13/32.

Late in the day former FRB Vice Chair Donald Kohn voiced his concern that “the US central bank is not well positioned to deal with a rising threat of faster inflation and such is very worrisome…the framework is not designed to deal with the upside risks to inflation.”

Last night the foreign markets were down.  London was down 0.54%, Paris down 0.04% and Frankfurt down 0.54%.  China was up 0.32%, Japan down 0.35% and Hang Seng down 0.13%.

The Dow should open little changed.  Oil is up another 0.5% to almost $71/barrel.   The 10-year is up 9/32 to yield 1.51%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.