Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Thursday. Today is Thursday, May 14th.
We got a bad inflation print this week.
The Numbers
The US Consumer Price Index came in at 3.8% — the highest level since May of 2023.
And it's largely driven by the increase in oil prices.
In the past six months alone, US gas prices have risen 65%.
Here is what makes this particularly concerning.
For the first time in three years, US inflation is outpacing US wage growth.
It costs more to live. Your income is not keeping up.
That is not a good place to be.
What This Means for the Fed
Incoming Fed Chairman Kevin Warsh is going to be very unlikely to cut interest rates into something like this.
That would be crazy.
You don't cut rates when inflation is running at 3.8% and rising.
If anything, you raise them.
The complicating factor is that a significant portion of this inflation is war-driven — tied directly to the Iran conflict and spiking oil.
So the question is whether this is temporary or structural.
We don't know yet.
But the Fed is constrained either way.
How Energy Seeps Through Everything
Here is something most people don't think about.
We have the Consumer Price Index — the price people like you and me pay for things.
And we have the Producer Price Index — the price companies pay for their inputs before they sell to us.
When oil prices rise, it doesn't just hit you at the pump.
It hits every truck, every train, every ship, every factory that runs on energy.
Producers see their costs go up.
They pass those costs to consumers.
Think about airline tickets.
Those prices are going to be significantly higher.
Gas is unique because it hits people directly, every single week, at the pump.
It's a slap in the face on a regular schedule.
The Bigger Picture
I want to be honest with you about something I've been thinking about.
I've spent my entire adult life studying history.
And when you look at the French Revolution, the Russian Revolution in 1918, the fall of the Weimar Republic — the fingerprints before every one of those revolutions is the same.
Inflation.
Back when I was in my twenties, Charlie Munger said something I didn't fully understand at the time.
"Inflation is the way democracies die."
Now I understand it completely.
You can see it in our body politic already.
People are working two jobs.
They don't feel like they're keeping up.
They go on social media and see someone with a Ferrari and a yacht and think — what is going on?
And here's the data that really concerns me.
Since about 2012, the stock market as a share of GDP has just soared, while total wages as a share of GDP have gone the other way.
If you own assets — stocks, real estate, investments — you've done well.
If you're an hourly wage earner, you're getting a smaller slice of the pie every year.
Period.
I have Jewish friends in New York who voted for an antisemitic mayor simply because they are in that much pain.
When you feel like you can't feed your kids despite working hard, at some point you stop blaming yourself and start blaming the system.
And when that happens, it happens fast.
History tells us this over and over again.
The rich keep getting richer, asset owners pull further ahead, and wage earners fall further behind.
At some point, people pick up pitchforks.
I don't see how we don't ultimately end up rebalancing wealth distribution in this country.
But that is a topic for another day.
What I can tell you right now is this: the people who come out ahead in periods like this are the ones who see it coming and position themselves accordingly.
This is an important subject to keep our eyes on.
Anyway, that's all I have for you today.
Have a good Thursday.
I will see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine