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How historically bad is inflation? Here’s what to look for in this week’s big CPI report

June 6, 2022, 12:35 PM UTC

Good morning. This is Bernhard Warner on New York’s East Side, filling in for Alan.

Let me give you some numbers to start your week ahead of Friday’s big consumer price index (CPI) inflation data dump. Global food prices are up 30% year on year. House prices have jumped a record 21% in that same period. Oil has doubled. You get the picture. And wages? Meh, paychecks are roughly 5% fatter in 2022. You don’t have to be a quant whiz though to see pay is well undershooting the rising cost of living.

Inflation on Main Street, not to mention anywhere above or below 14th Street, will dominate the economic (and political) landscape for the rest of the year. But surely inflation is peaking. Right? Maybe. Maybe, just maybe, Friday’s inflation numbers will show the worst is behind us. But that doesn’t mean our dream homes will suddenly become affordable, or that we should start planning that coast-to-coast driving trip or sink our savings back into stocks anytime soon.

In fact, Bank of America’s chief investment strategist Michael Hartnett warns that “investors should expect a very aggressive Fed [over the] next six to nine months.” In the nearer future, Hartnett & Co. are saying we’re about to enter the “summer of Volcker,” a reference to former Fed Chair Paul Volcker during the Carter-Reagan years. He and his colleagues were tasked with dousing raging inflation by raising, raising, raising interest rates. (I’m already feeling nostalgic for last year’s “hot vax summer.”)

In this environment of quantitative tightening, investors tend to punish companies with weak cash flow and high debt loads. Regardless of what Friday’s CPI tells us, a bunch of 50-basis-point rate hikes are in the cards. Mortgage rates will go up. Indebted households and firms will feel the squeeze. Belts will be tightened. And when the dust settles, that wages-to-inflation ratio will continue to be out of whack.

I’m looking forward to getting back to Rome where a superlative cappuccino still costs €2. Just be sure to order it before 11 a.m.

Bernhard Warner
@BernhardWarner
bernhard.warner@fortune.com

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This edition of CEO Daily was edited by Chloe Taylor.

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