Today’s #CPI report, which came in at 0.29% month-over-month and 2.21% year-over-year for core CPI (excluding volatile food and energy prices) gave us a bit to think about regarding the drivers of #inflation in the new economy.
For many years, we’ve seen an #economy driven by efficiencies and persistent pricing pressures on products that no longer display meaningful recurring demand, and ones in which supply chains have been optimized dramatically, reducing the cost to the end #consumer.
Still, the #CPI report displayed broad-based strength. Core goods prices were supported to some extent by the modest pass through of #tariffs, and we also saw increases in some of the more volatile components such as apparel and autos.
In the end, we don’t think today’s data takes us off the path of the #Fed lowering #rates another 25 basis points at its September meeting and probably again at its meeting in December.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
Today’s much anticipated #CPI report provided greater detail on the current #inflation picture, and importantly, on what the @federalreserve is most focused upon these days, and unfortunately, it’s hard to see it as anything other than a #setback.
Recently, it has become clear that the #Fed is taking on a patient stance with regard to #inflation coming down, but today's report was further evidence that it may take even longer for inflation to finally reach the Fed’s 2% target level.
In fact, today’s data means #CorePCE on a year-over-year basis may not get to 2.5% at any point in 2024, and that’s with a wedge where #CoreCPI is running around 100 basis points higher. This meaningful surprise therefore forces us to reassess some views.
Yesterday’s #CPI data was highly anticipated by #markets, and particularly whether the elevated shelter #inflation from last month’s data ended up being a quirky aberration within service level inflation that is still quite a distance from the Fed’s 2% intermediate-term target.
What compounded this quandary last month was a very strange divergence between the Owner Equivalent Rent (#OER) calculation and that for general #Rent.
Those two data points typically migrate closely together over time, with a maximum divergence of 9 basis points (bps) in 2023.
As was widely expected, the @federalreserve today halted the most aggressive policy rate #HikingCycle since 1980, leaving the Fed Funds range unchanged at 5.0% to 5.25%, a level that appears clear to us to be finally having an impact on the #economy.
We think today’s actions represent a “Hawkish skip,” which implies that #policy makers are seeking more #data before potentially hiking rates again in July, or September.
For our part, we think #ChairPowell’s comments at the press conference made it clear that the #FOMC is seeking to balance increasingly restrictive monetary policy with the high degree of uncertainty around the tightening of #CreditConditions…
Today’s #CPI report for May showed another very firm depiction of where #inflation currently resides in the U.S., with #coreCPI (excluding volatile food and energy components) printing at 0.44% month-over-month and 5.33% year-over-year.
Meanwhile, #headlineCPI data printed 0.12% month-over-month and came in just above 4% year-over-year, with declines in #energy components and some food prices being offset by gains in #shelter and used cars and trucks.
Overall, headline #inflation does appear to be moderating at a faster pace and we believe that the trend in inflation (despite the firmness of core measures in today’s report) is broadly heading in the right direction, relative to the @federalreserve’s inflation target.
We’ve seen the pace of #payroll gains decelerate to roughly the monthly trend pace from the last expansion; consensus has been waiting for this moment and expected a 195,000 job gain in May, but the data printed considerably stronger at 339,000 #jobs gained.
The three-month moving average of #nonfarm payrolls sits at 283,000, down from 334,000 jobs at the start of the year, but what the #LaborMarket imbalance needs is more supply and more slack.
The #unemployment rate ticked up to 3.65%, close to its 12-month average level, and average hourly #earnings (a volatile figure) gained 0.33% month-over-month and 4.3% on a year-over-year basis.
Today’s #CPI report continues to depict #inflation that is just too high for most people’s good, especially the @federalreserve’s.
In fact, the report showed that #inflation remains remarkably sticky, which doesn’t correspond to virtually any practical thinker’s timeline of when it might be expected to start to come down further.
These elevated levels of inflation continue to be remarkably high relative to the many months with which the #economy has now operated with persistently higher #InterestRates.