Typically at this time of year, Wall Street is fairly quiet as many traders spend time away from their screens in favor of sunning themselves in The Hamptons. But that hasn’t been the case this week.

Stocks sold off sharply today, with the major averages down anywhere from 2.94 to 3.33 percent, depending on your chosen benchmark. The selling in the past month had been most heavily concentrated in financial shares. But today’s volume was extremely heavy and we saw more than 5 stocks shares falling for every one gaining and volume an even move lopsided at 9-to-1 to the downside, underscoring the broad-based nature of the selling. End-of-the-quarter window dressing added to the selling.

The television talking heads were all over the fact that the Dow Jones Industrials slipped to their lowest point since September, 2006. But the venerable index’s woes are largely a matter of problems with its handful of constituent members, most notable of which is the ailing General Motors which fell to a 53-year low today. But as we know, the days of “as goes GM, so goes the U.S.” are long over.

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Yesterday we had news that the Consumer Price Index (CPI) for April rose by a less-than-expected 0.2 percent. That lowered the year-over-year rise in consumer prices to 3.9 percent, down from 4 percent the prior month. The market cheered the news, bidding up share prices by a healthy margin on expectations that inflation will continue to abate. But picking apart the data we weren’t all that impressed.

For instance, thanks to a “seasonal adjustment” the CPI counted gasoline prices as having fallen 1.9 percent in the month. Excluding the seasonal adjustment, however, gas prices actually rose 5.6 percent in April. With gas prices having risen even further in May, next month’s CPI is likely to come in a bit hot.

Food prices, meanwhile, as measured by the government’s data collectors, staged their biggest one-month gain in a generation, climbing 0.9 percent in April. On a year-over-year basis the CPI says food prices have climbed just 5.1 percent in the past year. But let’s face it, a quick glance at your weekly grocery bill will likely tell you that the CPI number is understating real life conditions by a wide margin.Read more...

Well, if you had any doubts that inflation is a very real problem, chances are they were erased yesterday. Last week it was the Consumer Price Index (CPI) that was throwing off an alarming reading. This week the inflation pictured darkened further as the Producer Price Index (PPI) climbed to a generation high.

Wholesale inflation has risen at a 7.4 percent level during the past 12 months. The increase in the index is tied to rising prices for a host of inputs rather than just energy costs. And while we don't expect crude oil prices to climb by another 65 percent as they have during the past year, other commodities are likely to continue to advance, keeping the PPI in an uptrend.

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