Last week, just one day after Ben Bernanke's maximum stimulus bombshell, the government released data on retail sales and consumer prices that demonstrated both why the Fed felt unafraid of inflation but also the degree to which they're playing with fire.
The consumer price index for August rose 0.6%, the largest gain since June of 2009. Ex-Food and Energy the gain was a lighter-than-expected 0.1%, but as is so often noted, Americans live on planet earth where buying food and energy is a fact of life. Coupled with Producer Price Index data coming in much hotter than expected due in large part to a 9% increase in fuel costs, there's a case to be made that inflation is already eating into corporate profits and American's pocket books.
Brian Sozzi, chief equities analyst at NBG Procuctions says things are only to get worse. In the wake of Fed action last week, he sees inflation picking up steam into next year.
"This is helicopter Ben; he's trying to create wealth through high stock prices," says Sozzi. The theory is that higher stock prices will lead to corporate hiring. The reality is that nothing of the sort is happening.
The S&P 500 hasn't been as high as it is now since the very end of 2007, at which point the jobless rate was 4.7%. Today we're at 8.1%, a figure distorted by the number of Americans who have quit searching for a job. Stock market players are doing fine, the folks Bernanke is ostensibly trying to help are getting on relief whatsoever. With profit markets dropping that disconnect is going to get worse before it gets better.
Sozzi says the jury is out on the consumer impact until the holiday season. September and October figure to be soft, but at least so far the Holidays seem okay. Regardless, Sozzi is "worried about the low-end consumer in the land of Bernanke."
The Fed apparently is not.
- Ben Bernanke