Thread by @RickRieder

Core #CPI (excluding those volatile #food and #energy components) came in at 0.6% month-over-month and rose 6.0% year-over-year.

Meanwhile, headline #CPI data printed at a very strong 1.0% month-over-month and came in at 8.6% year-over-year, spiking higher on #shelter, #gas and food costs.

These persistently outsized gains in #inflation are clearly having an impact on business and #ConsumerConfidence. Also, the #Fed’s favored measure of inflation, core #PCE, increased 0.34% in April, bringing the year-over-year figure for the measure to 4.9%, as of that month.

Today’s report showed continued strong prints in shelter, #fuel and #food components, which are areas that have been impacted by #supply disruptions and constraints and are essentials for all households.

It’s well-known that (historically at least) @federalreserve policymakers like to focus on their “preferred” #inflation measure, #corePCE, which may decline in the next several months, but in a very real sense, most U.S. households live in a headline #CPI world.

The construction of the #CPI measure of #inflation places a higher weighting on #housing and a lower weight on #healthcare, more closely resembling the out-of-pocket cash flows of a middle-class household than the Core PCE metric.

Further, when consumers consider making purchases of goods, and increasingly services, the prices at the pump (#gasprices) are at the forefront of their thinking, while Core PCE may historically be at the forefront of the #Fed’s thinking.

More and more #corporate announcements and earnings releases (or warnings) are reflecting a consumer that is now in a terrible mood given the decline in #NetDisposableIncome, and consequently consumers are dramatically slowing spending.

In most times, looking to Core measures of #inflation probably makes the most sense, in an attempt to “look past” near-term #volatility and attempt to observe how longer-term price trend dynamics are moving…

…but today we think the likely growing “wedge” between the Core PCE measure of inflation, and the #HeadlineCPI can’t merely be ignored.

Therefore, in our estimation, the major #risk to consumption, #employment, and the #economy overall, isn’t an organic growth slowdown…

…but the extent to which extreme #energy/food #price increases could cause central banks to push (ineffectually) against the string, and essentially fall into a damaging #PolicyMistake.

For now, #inflation is the “singular mandate” of the #Fed and the @ecb, but over the next few months we anticipate that the #employment side of the Fed’s mandate will re-enter consideration, as companies are increasingly freezing hiring with a number of them executing #layoffs.

We will continue to keep an eye on #CorePCE and #CoreCPI, but consumers, and increasingly employers, are keeping their eyes on #gas and #FoodPrices.