Experts React To 6.2% CPI Inflation, Highest Since 1990

The SPDR S&P 500 ETF Trust SPY traded higher by 0.3% on Wednesday morning after the Labor Department reported a 6.2% increase in the consumer price index in the month of October, the fastest inflation growth since late 1990.

What Happened: The headline CPI rose 6.2% in October, exceeding economist estimates of 5.9% and marking the highest growth rate since December 1990. The CPI was up 0.9% on a monthly basis, well above the 0.6% economists had expected.

Core inflation, which excludes volatile food and energy prices, was up 6.2% in October, its sharpest increase in 31 years.

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Fuel oil prices were up 12.3% month-over-month and 59.1% compared to a year ago. Used car prices were once again a major inflation driver in October as well. Used car and truck prices increased by 2.5% in October and are up 26.4% over the last 12 months.

The latest CPI inflation reading comes after the Labor Department reported last week that U.S. wages grew 4.9% year-over-year in October. Unfortunately, the Labor Department said Wednesday that real wages after adjusting for inflation were down 0.5% from September to October.

Bad News For Investors: Nancy Davis, founder of Quadratic Capital Management and portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund IVOL, said supply chain issues and labor shortages continue to drive prices higher.

“If inflation doesn't subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” Davis said.

Cliff Hodge, chief investment officer for Cornerstone Wealth, said a flattening yield curve is bad news for risk assets heading into 2021.

“The bond market is telling you that the Fed is way behind the curve on policy, as short rates rocketed while long rates have taken the release in stride,” Hodge said.

Will The Fed Change Course? Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said inflation may force the Federal Reserve to increase the pace of its tapering.

“We have already been positioning for higher inflation in our investments by using energy companies and higher quality companies — those with strong balance sheets, a competitive moat around their business and pricing power – as a way to lessen any impact that higher prices will have on profit margins,” Zaccarelli said.

Joseph Brusuelas, chief economist for RSM US LLP, said gasoline and food prices are the most important factors when it comes to public critcism against the Biden administration and the Fed.

"My sense is that this will not alter the short-term trajectory of policy but the open mouth operations at the Fed will need to target public expectations around pricing and the direction of policy," Brusuelas said.