Good Wednesday morning. August inflation data is out and the CPI report came in essentially in-line with the estimates. August saw a CPI of 3.7% year/year inflation with core inflation rising 4.3% year/year. The headline data came from rising gas prices, which were up 10.5% in the month. Get ready for more of this from gas prices, as oil marches to $100/barrel and beyond. Equity futures are flat on the news with bond prices slightly lower and yields slightly higher.

Our view remains unchanged. The 550 basis point increase in the Fed Funds Rate (FFR) over the last 17 months is in the process of causing "demand destruction" in the US economy. High oil/gas prices will have the same effect. And, as we covered yesterday, there’s been an historically high correlation between the Chinese PPI and US inflationary levels. With China experiencing (and exporting) deflation, combined with the ongoing demand destruction from the Fed’s rate hikes, plus 7.5% mortgages, it’s just a matter of time be...