• 4 hours Could This Be The Hottest Commodity Play Of 2021?
  • 19 hours JP Morgan Says Fintech Will Steal The Disruptor Show
  • 3 days Facebook Plays Dirty Down Under
  • 3 days Could This Be The Most Exciting Lithium Play Of 2021?
  • 6 days China Sidelines US As EU’s New Top Trading Partner
  • 8 days 3 Smart Ways To Play the Global Chip Shortage
  • 9 days Flying Taxis Are The Number One Speculative Bull Arena
  • 10 days Ocean Power: The Missing Link
  • 15 days Luxembourg’s Ultra-Secrecy Still Attracts Hundreds Of Billionaires
  • 16 days Robinhood Is Under Fire And Trading ‘Democracy’ Is In Question
  • 17 days Bitcoin Could Be Worth $12 Trillion In The Long-Term
  • 18 days The Biggest Tech IPO Since Uber … For Farmers
  • 20 days The Biggest Boost Yet for the Cannabis Industry
  • 21 days Biden Administration Signs $231 Million Deal For At Home COVID Tests
  • 22 days China’s Tech Billionaire Ma Is Back And ‘Compliant’
  • 23 days Gamestop Crashes By 60% But The Story Is Far From Over
  • 25 days Crypto Crime Is Plummeting
  • 27 days Small Oil Firm Gets Massive Wall Street Bets Bump
  • 28 days Super Bowl Regulars Ditch Top Commercial Slots This Year
  • 29 days TikTok Got A US Reprieve, But Elsewhere, It’s War
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

  1. Home
  2. Markets
  3. Other

Summary of My Post-CPI Tweets

Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus...buy my book about money and inflation, published in March 2016. The title of the book is What's Wrong with Money? The Biggest Bubble of All; order from Amazon here.

  • The timing of Yellen's testimony was useful for her. Given base effects, y/y CPI may drop to 2.1% from 2.2% today. So y'day she >>>

  • >>>could sound hawkish, having a sense that today she'd get a decent CPI. It's base effects that could drop CPI - but that's optics.

  • Last Jan, core CPI printed 0.293%. Anything less than 0.23% will cause y/y to tick downward. Feb is also a tough hurdle.

  • But these MAY be tough hurdles because of tricky seasonals. Certainly Jan's number could be. But this is why we look at y/y.

  • Actually, the BLS revised some of that...core was 0.293% in Jan originally but now comparison is a trifle easier at 0.266%.

  • So revising my prior tweet: anything less than 0.20% will cause y/y to tick downward. Feb's hurdle will be 0.25%.

  • Well howdy doo. Core CPI +0.31% m/m, far above consensus and pushing y/y to 2.3% (actually 2.26%) when it was expected to fall to 2.1%.

  • That's a whoops.

  • That's the highest m/m core in a decade. At least, after revisions have lowered some peaks.

CPI Percent Change

  • Housing y/y 3.12% from 3.04%, Apparel +1.0% from -0.04%. Medical Care 3.86% vs 4.07%.

  • Last 12 m/m figures from CPI. At least the last 5 look like a kinda scary trend. Probably illusory.

M/M Core CPI

  • Core services 3.1% y/y, unchanged. But core goods -0.2% vs -0.6% last mo.

  • That's curious given dollar strength but a good reminder that the dollar isn't inflation destiny.

  • So within Housing, Primary Rents slackened to 3.93% vs 3.96% y/y. OER also ebbed, 3.54% vs 3.57%.

  • So rise in housing was less important parts: household energy (3.51% vs 2.45%) and various furnishings. Again, those are core goods.

  • New and used motor vehicles, which is 6.6% of CPI, bumped up to -0.86% vs -1.03% y/y.

  • In Medical Care: drugs 4.85% vs 4.81%, Prof Svcs 2.94% vs 3.11%, Hospital 4.05% vs 4.28%. Again, goods not services.

  • Not sure how to feel about the goods bumps. On the 1 hand that's what has held core down so possibly signif. But also less stable.

  • Core inflation EX housing, 1.35% y/y, up from 1.21% but still pretty low and down from the level of a year ago.

  • Core CPI back near highs, but not there yet.

CPI YoY

  • Hey, on the plus side this ought to help tomorrow's 30y TIPS auction.

  • So here are the four pieces, in reverse order of stability. 1. Food & Energy. Not a surprising story but headline, not core.

CPI: Food and Energy

  • Core goods. This is the current surprise. Might be seasonal adj issue. But if this goes to 1%, it's a big story.

CPI: Core Goods

  • Core services less rent of shelter. Things like medical care. Have been softer, mild uptick this month. Core over 3% needs this.

CPI: Core Services less Rent of Shelter

  • Rent of Shelter. No sign of any letup here, so no disinflation in sight.

CPI: Rent of Shelter

  • I guess the story of CPI today is that it's a new story. It wasn't housing, wasn't medical care. It was the little stuff. Core goods.

  • That MIGHT mean that it's a one-off, seasonal thing. But also could mean that inflation is broadening.

  • Here is a chart of the weight of CPI categories that are rising faster than 3%.

CPI: Weight of Categories

  • ...and the weight of categories deflating. So recent rise is more about the deflationary tails ebbing.

CPI: Weight of Categories 2

  • Early estimate of Median CPI: 0.26%, y/y to 2.60%. But median category is an OER subcategory so my estimate may be off.

  • A good time to remember not to put too much weight on one month's number.

  • BUT, after Feb, 7 of the next 9 months will compare to prior year's figures under 0.2%.

  • If we avg 0.2142% for rest of year on core CPI (that's the avg of last 4 months we've seen), 2017 will come in at 2.70% core.

  • Thinking about inflation more? Think about reading my book:

  • OK that's all for now on CPI. One more note: I can't think of a single way this is positive for equities. Or fixed-rate bonds.

  • If you're a pension fund, that means you should read our recent article with some urgency:

  • Bottom line today is that CPI *may* be one-offs...but it's hard to argue bearish on inflation with the highest m/m core in a decade.

I don't have a lot to add to this, other than to point out that if Yellen was trying to sound hawkish yesterday, thinking she could back off today after a soft CPI, then she set a trap for herself. After a solid CPI, she will either have to double down on the hawkish rhetoric or somehow soften her remarks at an awkward time for that. I do not believe for a minute that Yellen, the most dovish Chairman in history, is eager to raise rates in March. But I also believe that she has set herself up to lose a lot of credibility now if the Fed fails to act. The one possible saving grace is that the FOMC meeting in March is on the same day as the next CPI figure, so depending on the month-to-month wiggle she might save some face.

But it is also possible, and I think increasingly probable, that the next CPI is also firm. I don't think we will get another 0.3%, but an 0.25% would also be disturbing. With core goods the main contributor this month, and core services taking the month off, a resumption of the strengthening from core services is not out of the question.

Don't read too much into this one number. But looking at the contour of the recent inflation data, you can be forgiven for taking precautions.

What's Wrong with Money? The Biggest

 


P.S. Don't forget to buy my book! What's Wrong with Money: The Biggest Bubble of All. Thanks!

You can follow me @inflation_guy!

Enduring Investments is a registered investment adviser that specializes in solving inflation-related problems. Fill out the contact form at http://www.EnduringInvestments.com/contact and we will send you our latest Quarterly Inflation Outlook. And if you make sure to put your physical mailing address in the "comment" section of the contact form, we will also send you a copy of Michael Ashton's book "Maestro, My Ass!"

 

Back to homepage

Leave a comment

Leave a comment