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CPI Drops Half a Point: +7.7% Headline, +6.3% Core
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Thursday, November 11, 2022
This morning, one of the most highly scrutinized inflation metrics is out: Consumer Price Index (CPI), for the month of October, reached its lowest point since January of this year. Month over month, we see +0.4% — in-line with the previous month’s headline but 20 basis points (bps) below what analysts were expecting. This is also the fourth-straight downward print on headline CPI. “Core” — stripping out volatile gas and food prices — was +0.3%: 20 bps lower than projected, and it cuts September’s +0.6% in half.
Year-over-year CPI dropped half a percentage point month over month: +7.7% from +8.2% previously reported, and again 20 bps below consensus. The core CPI year over year — a metric Fed Chair Jay Powell cited by name in his latest monetary policy press conference — came in at +6.3%, down 30 bps from September and 20 bps from the estimate. This +6.3% matches the August core CPI year over year; the +6.6% was the high point of this cycle and the loftiest print in more than 40 years.
As a result, pre-market futures took off, and opened well into the green: the Dow +850 points, the S&P 500 +125 and the Nasdaq +500 points. Apparently, market participants see the writing on the wall regarding inflation, and thus what the Fed intends to do with interest rates going forward. Boiling this down, it looks like the possibility for a 50 bps rate hike in mid-December instead of the 75 bps investors had been busy baking into the cake since Powell’s presser last week.
There will be one more CPI report out before the next Fed statement: in fact, it comes the very day the next Federal Open Market Committee (FOMC) meeting commences, December 13th. Perhaps we take another big step down and we’re at a 5-handle on core? This is why early trading today is rallying. Although a 5-handle is still more than twice as high as the Fed wants to see inflation. That said, the Fed also knows it operates with lagging data — if this presumed 5-handle for November heads toward a 4-handle by December? Yeah, that could be cause for the Fed to take its foot off the gas a bit.
Initial Jobless Claims are also out today, as with nearly every Thursday morning, and slightly higher than anticipated: +225K, up 5K from projections and +7K from the previous week. Continuing Claims stuck at 1.49 million from the previous week (reported a week in arrears from new claims). Both of these figures are consistent with a robust job market. Although we’re beginning to see the shedding of tens of thousands of jobs in the tech sector — first Twitter, now Meta (META - Free Report) , likely with others to follow.
Labor force deterioration is usually one of the last economic metrics to demonstrate a slowdown; employers don’t like to lay off employees unless they absolutely have to (Twitter trying to hire back key layoffs this week is a somewhat amusing outlier here). This past summer, we saw initial claims swoop up above 260K for a week, but came back down eventually — though not back to the 50-year lows we saw this past March and April. Getting back above 250K and staying there — with longer-term claims heading back toward 2 million — will be another indicator to the Fed that their rate hikes are hitting their targets. Questions or comments about this article and/or its author? Click here>>
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CPI Drops Half a Point: +7.7% Headline, +6.3% Core
Thursday, November 11, 2022
This morning, one of the most highly scrutinized inflation metrics is out: Consumer Price Index (CPI), for the month of October, reached its lowest point since January of this year. Month over month, we see +0.4% — in-line with the previous month’s headline but 20 basis points (bps) below what analysts were expecting. This is also the fourth-straight downward print on headline CPI. “Core” — stripping out volatile gas and food prices — was +0.3%: 20 bps lower than projected, and it cuts September’s +0.6% in half.
Year-over-year CPI dropped half a percentage point month over month: +7.7% from +8.2% previously reported, and again 20 bps below consensus. The core CPI year over year — a metric Fed Chair Jay Powell cited by name in his latest monetary policy press conference — came in at +6.3%, down 30 bps from September and 20 bps from the estimate. This +6.3% matches the August core CPI year over year; the +6.6% was the high point of this cycle and the loftiest print in more than 40 years.
As a result, pre-market futures took off, and opened well into the green: the Dow +850 points, the S&P 500 +125 and the Nasdaq +500 points. Apparently, market participants see the writing on the wall regarding inflation, and thus what the Fed intends to do with interest rates going forward. Boiling this down, it looks like the possibility for a 50 bps rate hike in mid-December instead of the 75 bps investors had been busy baking into the cake since Powell’s presser last week.
There will be one more CPI report out before the next Fed statement: in fact, it comes the very day the next Federal Open Market Committee (FOMC) meeting commences, December 13th. Perhaps we take another big step down and we’re at a 5-handle on core? This is why early trading today is rallying. Although a 5-handle is still more than twice as high as the Fed wants to see inflation. That said, the Fed also knows it operates with lagging data — if this presumed 5-handle for November heads toward a 4-handle by December? Yeah, that could be cause for the Fed to take its foot off the gas a bit.
Initial Jobless Claims are also out today, as with nearly every Thursday morning, and slightly higher than anticipated: +225K, up 5K from projections and +7K from the previous week. Continuing Claims stuck at 1.49 million from the previous week (reported a week in arrears from new claims). Both of these figures are consistent with a robust job market. Although we’re beginning to see the shedding of tens of thousands of jobs in the tech sector — first Twitter, now Meta (META - Free Report) , likely with others to follow.
Labor force deterioration is usually one of the last economic metrics to demonstrate a slowdown; employers don’t like to lay off employees unless they absolutely have to (Twitter trying to hire back key layoffs this week is a somewhat amusing outlier here). This past summer, we saw initial claims swoop up above 260K for a week, but came back down eventually — though not back to the 50-year lows we saw this past March and April. Getting back above 250K and staying there — with longer-term claims heading back toward 2 million — will be another indicator to the Fed that their rate hikes are hitting their targets.
Questions or comments about this article and/or its author? Click here>>