Lede
Don’t miss out on the rally no one sees coming.
Today we got the CPI report and it was spectacular news.
- CPI MoM came in negative (-0.1%) for the first time since 2020.
- CPI YoY (3.0%) is at a multi-year low.
- Core CPI YoY (3.2%) is at a multi-year low.
- Housing inflation is at a multi-year low.
- Prices for core services excluding housing -0.1% MoM; multi-year low.
Story
For the second month in a row, headline CPI MoM was 0.0% or lower.
Nick Timiraos noted that the three-month annualized Core CPI dropped to 2.1% in June, marking its lowest level since COVID.
The rent lag I have written about now for over six-months is finally barely catching up with reality.
Here is a chart of housing inflation:
Further, prices for core services excluding housing came in at -0.1% MoM, the lowest since August 2021.
Here is the chart for Owners Equivalent Rent (OER), which is still obtusely high and lagged but continuing its march lower:
And is there more room to go with this obtuse measure? Yes, a lot of room.
Here is the measure of rent in CPI versus the new index created by the Bureau of Labor Statistics (BLS) itself:
There is still substantial disinflation coming. I note again, that the shelter component of CPI makes up 34% of Core CPI and 18% of Core PCE.
Ernie Tedeschi pointed out that housing inflation slowed from 0.42% to 0.27% MoM. The 0.27% figure aligns with pre-pandemic averages.
When we exclude shelter, CPI and PCE have been at target for more than 12-months.
This is a chart of Core CPI using the monthly annualized rate and the three-month annualized rate from Jason Furman:
Here is a 10-year chart of Core Inflation (YoY)
US Core Inflation Rate (Core CPI YoY) 10-Year chart (Source)
Inflation is over. The trajectory is decidedly down, with CPI, Core CPI, PCE, and Core PCE all at multi-year lows.
This, all while the unemployment rate is at multi-year highs and continuing jobless claims are near multi-year highs.
Unemployment Rate
The savings rate is at multi-year lows, credit card delinquencies are at multi-year highs, GDP growth is slowing, and real personal disposable income growth is slowing.
US Household cumulative excess savings
Credit Card Delinquencies
The dual mandate, jobs and prices, is equal weighted.
One is not more important than the other in the eyes of the law.
It’s time for the Fed to focus on the portion that is moving in the wrong direction, not the one moving in the right direction.
This is a slide from the last CML Pro webinar held six days ago:
The futures market agrees, as the probability of a rate cut in September has risen to 90%, with the probability of rates being 50 bps lower now at 7%.
Treasury yields have fallen across the board on the CPI news as well:
Finally, here is a summary of all of the data today and how it lines up versus analyst estimates:
Data Lede
- US Inflation Rate (CPI YoY):
- 3% vs 3.1% consensus and 3.3% prior.
- US Inflation Rate (CPI MoM):
- -0.1% vs 0.1% consensus and 0% prior.
- US Core Inflation Rate (Core CPI YoY):
- 3.3% vs 3.4% consensus and 3.4% prior.
- US Initial Jobless Claims:
- 222K vs 236K consensus and 239K prior.
- US Continuing Jobless Claims:
- 1852K vs 1860K consensus and 1856K prior.
- US Jobless Claims 4-week Average:
- 233.5K and 238.75K prior.
Conclusion
What the Fed thinks about inflation and the underlying economic data is the only thing that matters.
I’ll repeat that: What the Fed thinks is the only thing that matters – the data has not mattered.
It’s time to cut rates.
If we don’t get a cut by September at the latest, here should be consideration of an impeachment of Chairman Powell.
Thanks for reading, friends.
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