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Marko Bjegovic Profile picture
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Nov 8 • 8 tweets • 7 min read
Amid the election today it is easy to forget we get the Oct #CPI Thursday.

#CPI is the most important economic report this week.

So where will the Oct figure print?

A thread.

1/8
In prior months my estimates were ahead of both consensus and the Cleveland #Fed.

They also turned out to be more optimistic than the actual numbers.

Non #CPI/#PCE indicators are showing a clear #disinflation, even MoM rent #deflation:



2/8
Rents make 32% of the #CPI (about 40% of the core #CPI) and are therefore the crucial component.

Even if we seasonally adjust them, rents are showing clear declines, the largest in at least 5 yrs:


3/8
But these rent declines have not been reflected in the #CPI.

#CPI rents can lag more than 1yr after the real rents.

Therefore #CPI is an extremely lagging indicator and it's tough to correctly predict when it will start reflecting what is already happening on the ground.

4/8
If the #Fed is led by such an extremely lagging indicator like #CPI that in some ways reflects what happened 12M+ ago, it is certain they will overdo it.

And they already hiked too much just like last yr they waited too long after following the same lagging #CPI.

5/8
This month my estimates are closer to consensus and the Cleveland #Fed estimates, although still a tad lower than both.

If the #CPI comes in higher than expected, I don't think that would have much impact on the #Fed's decision in Dec.

6/8 Image
These threads take a lot of time and effort to write.

If you like the content, please love and retweet to help me spread the message.

7/8
If the #CPI comes in lower than expected, say below 8%, and especially if the core comes better than 6.5%, this may force the #Fed to think about a slower hike in Dec.

Worth to note they will get one more #CPI report (Nov) before they meet in Dec.

8/8

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More from @MBjegovic

Marko Bjegovic Profile picture
Nov 10
Oct #CPI came in way better than consensus estimates and even better than I projected.

This is only the 2nd beat on the headline and 3rd on the core #CPI this yr.

Does that mean the #CPI has really started to come down and the #Fed can #pivot?

🧵

1/18

Image
In the details this was a good report. MoM unadjusted:
1) Food +0.7%, same as Sep
2) Energy +1.0% vs -2.6% in Sep due to higher gas prices (+3.1% vs -5.6% in Sep), while #electricity and #natgas went down (-1.3% and -4.0% respectively vs +0.8% and +2.6% respectively in Sep)

2/18
3) Apparel unexpectedly went down by -0.6% vs +2.2% in Sep
4) New vehicles edged up to +0.5% vs +0.4% in Sep
5) Used vehicles and trucks -2.3%, slower than in Sep (-4.2%)
6) Medical care commodities -0.02% vs -0.09% in Sep
7) Alcoholic beverages +0.8% vs +0.1% in Sep

3/18
Read 18 tweets
Marko Bjegovic Profile picture
Nov 8
This came as a huge surprise to me... still not sure what's the real agenda behind this?
cnbc.com/2022/11/08/bin…
More on this:
$BTC lowest in 2yrs
Read 7 tweets
Marko Bjegovic Profile picture
Nov 4
Tdy we got the Oct employment report what many have described as "disappointing" for the #Fed.

NFP 261K vs 200K est. vs 315K prior
UR 3.7% vs 3.5% est. vs 3.5% prior
AHE MoM +0.4% vs +0.3% est. vs +0.3% prior

Is that really disappointing?

Let's delve deeper.

🧵

1/9
NFP change is far less than the headline number would suggest.

Full time workers have been declining throughout the whole #Fed hiking period (Mar - Oct).



2/9
Also 3M MA NFP is at the lowest level in almost 2 years - since Jan 2021.

Slowdown in NFPs has taken longer to materialize and it still hasn't taken full effect but NFP growth seems to be easing.

3/9
Read 9 tweets
Marko Bjegovic Profile picture
Nov 2
Fed funds futs are showing an 87.5% probability of a 75 bps hike going into the FOMC decision tdy at 2 pm ET.

At this time during prior meetings the futs were showing 100 or high 90s % probability of a 75 bps hike.

Do traders reflecting the 12.5% know sth we don't?

#Fed

1/8
Can the #Fed opt for 50 instead of 75?

#nikileaks tweeted the #Fed is thinking about slowing down the hikes but tried to downplay that afterwards.

This points to sort of a confusion at the #Fed and that some members may not have made the final decision on the rate hike yet

2/8
Also some politicians have written letters to the #Fed calling them to focus more on the jobs creation, i.e. opt for easier hikes.

Of course we have the midterms next week.

Adding to that is the BoC decision last week to hike 50 when every1 expected them to go 75.

3/8
Read 8 tweets
Marko Bjegovic Profile picture
Oct 20
There have been lots of talks around easing rent #inflation and how lagging the Shelter #CPI really is.

Its 12M (or longer) lag makes it difficult to use in assessing current/future #inflation.

So what can the #Fed do?

Let's take a look at some other measures.

A thread.

1/14
Lots of recent comments by the #Fed have been about "sticky" and "high" #inflation.

But #inflation is neither sticky nor high as evidenced by the headline #CPI in the last 3M (unadjusted).

2/14

Then the #Fed tries to spin it by saying core #inflation is "sticky" and "high".

If we exclude the shelter component (unadjusted), core #CPI is quite low and in a downtrend.

Now obvious Q is what if it reverses its course just like it did in 2021 and heads up again?

3/14
Read 14 tweets
Marko Bjegovic Profile picture
Oct 13
Without seasonal adjustments there are many things to cheer for with Sep #CPI report.

3MA #CPI unadjusted is only +0.06%, the lowest since Dec 2020! (+0.02%).

3MA is even lower than in Mar 2020 when the #Fed started the latest QE.

Details follow in a thread.

1/9
1) Food decelerated a bit to +0.7% MoM from +0.8% in Aug
2) Energy a bit slower downward than one would expect due to unexpectedly higher gas prices (+2.6% vs -10.6% Henry Hub Natural Gas Spot Price - this would need to be reflected in Oct)
3) Core mixed but positive bias

2/9
ONLY 2 categories with faster MoM #inflation:
a) Apparel (surprising rise from +1.7% in Aug to +2.2%) and
b) Transportation Services (decline in airline fares ended which couldn't offset faster vehicle maintenance and insurance #inflation - trans.serv. +1.7% vs -0.2% in Aug)

3/9
Read 9 tweets

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