Thread by @MBjegovic

At first glance, Nov #CPI was somewhat better-than-expected report (headline MoM slightly lower than expectations -0.1% vs 0%) and mostly in line (YoY headline, as well as MoM&YoY core).

But in the details #inflation is much weaker than gets recognized.

A thread.

1/17

Unadjusted headline #CPI is down for the 2nd M in a row with -0.31% which is the lowest print since Apr 2020 (-0.67%).

In the last 8 yrs there were only 2M with materially lower prints (Apr 2020 and Jan 2015 -0.47%)!

2/17

Unadjusted headline in Dec 2022 (-0.31%) is the 6th lowest in 8 yrs but 3 of these prints were almost identical (Dec 2018 -0.32%, Nov 2018 -0.33% and Dec 2015 -0.34%).

In Apr 2020 the economy was on forced lockdown, and in 2015/late 2018 #deflation was a problem.

3/17

Even more important, 3M moving average of headline CPI (MoM unadjusted and annualized) is 0%.

#CPI has been running below the #Fed's target since Sep and now #inflation is nonexistent flirting with #deflation.

4/17

For the ones that may be reading this for the first time, yes even #CPI 2.1%, 2.5% or so is still BELOW the #Fed's target.

It's bc the #Fed doesn't target 2% #CPI but (core) #PCE.

#CPI LT avg (since 1913) is 3.3% which is more or less consistent with 2% core #PCE.

5/17

In the details, Dec #CPI mostly shows #deflation/#disinflation. MoM unadjusted:
1) Food +0.3% vs +0.2% in Nov (rare #inflation)
2) Energy -6.1% vs -2.5% in Nov:
a) #gasoline -12.5% vs -3.6% in Nov
b) #electricity +0.7% vs -1.2% in Nov
c) #natgas +3.4% vs -2.2% in Nov

6/17

3) Apparel decelerated its decline from Nov (-2.1%) to still negative -1.7%
4) New vehicles eased marginally from 0.11% in Nov to 0.06%
5) Used cars and trucks decline was somewhat lower (-2.4% vs -2.8% in Nov)
6) Medical care commodities +0.1% vs +0.2% in Nov

7/17

7) Alcoholic beverages +0.4% vs +0.6% in Nov
8) Tobacco -0.1% vs +0.7% in Nov
9) Shelter +0.734% vs 0.58% in Nov (rare #inflation, Shelter is a flawed statistic showing what happened with rents 12M+ ago)

8/17

10) Medical care services 0% vs -0.7% in Nov
11) Transportation service -0.2% vs +0.3% in Nov

Only 2 components showed #inflation in Dec (Food and Shelter).

Since Shelter is a flawed statistics, actual #inflation can be attributed to only one component - Food.

9/17

That being said, Shelter is the most important component making 32.9% of the whole #CPI and 42.0% of the core #CPI.

While Shelter registers what happened with rents 12M+ ago actual rent #inflation (Apartment List National Rent Index - ALRNI) has been negative 4M in a row.

10/17

If we swap #CPI Shelter component with ALNRI, core #CPI is DOWN -0.34% in Dec.

This marks the 4th consecutive M of negative core #CPI (Shelter swapped with ALNRI).

11/17

To recap, 3M moving average unadjusted #CPI (MoM annualized) has been below the #Fed's target since Sep and is now 0% (nonexistent #inflation).

Core #CPI where Shelter is swapped with ALNRI has been negative MoM.

This is why I'd been calling for the #Fed to pause in Sep.

12/17

Now figures show the #Fed unnecessarily continued hiking in Sep and beyond (+200 bps so far and counting) only creating economic damage, with #inflation already being way down.

All of the mentioned calls for the #Fed to immediately cut at Jan 31-Feb 1 meeting.

13/17

However there is a difference between what the #Fed should do (#economy-wise), what it says will do and what it'll end up doing.

These 3 can, at times (like tdy) be worlds apart.

14/17

This is less true for their next Jan 31-Feb 1 meeting.

This #CPI report pretty much sealed the 50 vs 25 debate.

The #Fed will go 25.

Key Qs remain:
1) What will they do in Mar and beyond?
2) When will they pause and for how long?
3) When will they cut and by how much?

15/17

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.

16/17

I will answer these important Qs about the #Fed #pivot and many more about the economy and mkts in my next

Pick Marko's Brain Workshop

on Thursday Jan 19.

Stay tuned.

17/17