💸🧺 CPI Data Came Back, Let's Break it Down
Happy Hump Day everyone,
Hope you are having a good week so far. The FOMC just approved an interest-rate increase of 0.5% and signaled plans to keep raising rates at its next few meetings. Inflation has been in steady decline but still well above the targeted 2% rate. This week, we take the CPI headline and break down what drove the latest reading.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
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Every month, the Labor Department issues new CPI data so we can keep track of how high inflation is compared to a month/year ago. Prior to 2021, these readings were largely brushed over by financial media, giving way to bigger stories such as the crypto boom and the NFT craze. Since the beginning of 2021, however, the U.S. CPI reading has become almost a daily talking point for many who consume financial media because of how outrageously high the readings have gotten, peaking at 9% in June 2022. Lately, the media has strategically sensationalized a narrative of rampant inflation to drive views but consistently fails to deliver on the picture as a whole. While our current inflation is well off the desired 2%, we want to give some background into what is driving our inflation data and let you decide how sensational you want to be.
The latest CPI report from the Labor Department came out yesterday and the results were a mixed bag. The headline number showed that the wide basket of goods and services that the Labor Department uses to track inflation rose just 0.1% from the previous month and 7.1% from a year ago. Compared to Wall St. estimates, the actual data came in below the expected 0.3% monthly increase and the 7.3% 12-month increase. This is a positive sign that the seemingly runaway inflation we have seen is beginning to loosen up, and that the Fed has been successful in taming it. The latest increase is at the lowest level since November 2021.
Falling energy prices are believed to have kept inflation at bay, declining 1.6% for the month, although on the year, the energy index is still up by 13.1%. Used vehicle prices, which were a major contributor to the inflation burst (think back to when a used car was more expensive than a new car), fell 2.9% for the month and 3.3% from a year ago. Medical care services also contributed to the latest reading falling short of economist estimates, declining 0.7% on the month.
To the disappointment of many, food prices continued to rise, up 0.5% on the month and 10.6% from a year ago, and shelter which makes up 1/3 of the CPI weighting, rose 0.6% on the month and 7.1% on the year.
Stocks responded very positively to the news but the market has since cooled in the day following the publishing of the data. Inflation seems to have peaked around 9% in June and the monthly readings since June have shown a slow but steady decline, taking pressure off the Fed to raise rates and reinstating confidence that the Fed can reign in inflation. The FOMC concluded its two-day meeting today, and raised rates by 0.5%, although markets widely expected the increase regardless of the latest CPI reading. We look forward to next month to see if the trend continues.
Weekly News Roundup
Consumer Prices rose less than Expected in November, up 7.1% from a Year Ago (CNBC)
The consumer price index rose just 0.1% from the previous month and is up 7.1% from a year ago. Economists had been expecting a 0.3% monthly increase and a 7.3% 12-month rate. Food prices are up 10.6% from a year ago and shelter, which makes up about 1/3 of CPI weighting, continued to escalate up to 7.1% on an annual basis. Falling energy prices helped keep inflation at bay, declining 1.6% for the month, partially due to a 2% decrease in the price of gasoline.
HY: Meanwhile concert tickets have seemingly gone up from like $50 a show 4 years ago to $200-300 a show these days, ugh.
NY Fed: Consumers See Inflation Easing Considerably in the Next Year (CNBC)
Consumers grew more optimistic about inflation in November amid expectations that both food and energy price increases would be less severe in the coming year, according to a NY Fed survey. The survey indicated that respondents see one-year inflation running at a 5.2% pace, down 0.7% from the October reading, the lowest level since August 2021. The survey comes as Fed officials have indicated the likelihood of a 0.5% interest rate hike coming this week.
HY: Great news but we’re not out of the woods yet!
Tesla Investors Voice Concern Over Elon Musk’s Focus on Twitter (WSJ)
Investors are expressing their discomfort toward Chief Executive Elon Musk’s involvement with Twitter, suggesting that it may be to the detriment of Tesla with the car company’s stock on track for its worst full-year performance. Musk admitted himself that he had been spending most of his time focusing on Twitter at a trial about his Tesla compensation package last month. “I expect to reduce my time at Twitter and find somebody else to run Twitter over time,” Musk testified. Shares of Tesla are down 54.31% YTD.
HY: Long term for Tesla this should be fine. Yes, Elon is spending a lot of time at Twitter, but its not like a car company just evaporates overnight. The share price is more likely reflective of sentiment.
Charts of the Week
“Service inflation is largely unaffected by supply chains and commodity prices. Instead, it is trending higher due to a combination of strong labor markets and a shift in demand for services. Rising inflation expectations may add pressure on wages and service prices (as well as goods prices).
Looking ahead, the divergence is likely to continue. Weak global growth is putting downward pressure on commodity prices and supply chains are still in the process of normalizing. That process could speed up as spending continues to shift away from goods. However, service price inflation has been and likely will continue to be quite sticky. As Powell and others point out, the labor market is the key to getting service price inflation under control.” - Bank of America