Friday, June 10, 2022
May Consumer Price Index (CPI) numbers are out this morning, and they are hotter than expected — certainly hotter than desired: +1.0% on headline was 30 basis points above expectations, and more than 3x as high as the April headline. Year over year, headline is +8.6% — a short-hand figure for inflation — a new cycle high, the highest since 1981 — back when Americans were introduced to Pac-Man.
The core read, which strips out volatile food and fuel costs, reached +0.6% — in-line with the previous print, and a tick ahead of the +0.5% anticipated. Year over year core made it to a 6-handle: +6.0%, down from the +6.2% last time but 10 basis points higher than expected.
This is a 17-year high on headline CPI, which is obviously not what market participants buying into stocks this week were hoping for. In the current cycle, today’s headline takes out the April 2021 read of +0.9%. And we see the proof in the pudding: where pre-market futures were -27 points on the Dow, flat on the S&P 500 and +43 points on the Nasdaq, we’re now at -320, -47 and -165 points, respectively.
So inflation is proving stubborn, which means the Fed will have to keep its nose to the grindstone. This means the 50 basis-point (bps) interest rate hike next week and another 50 bps in July — at least! — is not up for debate, unless it is to put 75 bps, or perhaps a full 1%, on the table. But the cautious nature of Jay Powell’s Fed, to this point, makes it more likely interest rates will increase at their telegraphed portions rather than pop a surprise on the markets.
Ultimately, inflation will come down one way or another. Perceptions are now that the Fed has lost its grip on controlling inflation, although a simple moderation of consumer spending — which has clearly not happened (as of last month, at least) — will do the job the Fed thus far has been unable to.
Spending habits grew rich during the period of government stipends, and those have yet to roll back to something less exuberant. Once they do, we should start seeing some lower CPI numbers, at least on the core reads.
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May CPI Stays Hot at +1.0%, +8.6% Year Over Year
Friday, June 10, 2022
May Consumer Price Index (CPI) numbers are out this morning, and they are hotter than expected — certainly hotter than desired: +1.0% on headline was 30 basis points above expectations, and more than 3x as high as the April headline. Year over year, headline is +8.6% — a short-hand figure for inflation — a new cycle high, the highest since 1981 — back when Americans were introduced to Pac-Man.
The core read, which strips out volatile food and fuel costs, reached +0.6% — in-line with the previous print, and a tick ahead of the +0.5% anticipated. Year over year core made it to a 6-handle: +6.0%, down from the +6.2% last time but 10 basis points higher than expected.
This is a 17-year high on headline CPI, which is obviously not what market participants buying into stocks this week were hoping for. In the current cycle, today’s headline takes out the April 2021 read of +0.9%. And we see the proof in the pudding: where pre-market futures were -27 points on the Dow, flat on the S&P 500 and +43 points on the Nasdaq, we’re now at -320, -47 and -165 points, respectively.
So inflation is proving stubborn, which means the Fed will have to keep its nose to the grindstone. This means the 50 basis-point (bps) interest rate hike next week and another 50 bps in July — at least! — is not up for debate, unless it is to put 75 bps, or perhaps a full 1%, on the table. But the cautious nature of Jay Powell’s Fed, to this point, makes it more likely interest rates will increase at their telegraphed portions rather than pop a surprise on the markets.
Ultimately, inflation will come down one way or another. Perceptions are now that the Fed has lost its grip on controlling inflation, although a simple moderation of consumer spending — which has clearly not happened (as of last month, at least) — will do the job the Fed thus far has been unable to.
Spending habits grew rich during the period of government stipends, and those have yet to roll back to something less exuberant. Once they do, we should start seeing some lower CPI numbers, at least on the core reads.
Questions or comments about this article and/or its author? Click here>>