The Week in Review June 13, 2022
Inflation Stays Hot
Talk of peak inflation appears to have been premature following the latest release of the CPI.
The Consumer Price Index rose 1.0% in May, and the core CPI, which excludes food and energy, rose 0.6%, according to the U.S. Bureau of Labor Statistics (BLS). The CPI and core CPI exceeded expectations of 0.7% and 0.5%, respectively, per Dow Jones Newswires.
Annually, the CPI hit a fresh 40-year high of 8.6% vs 8.3% in April, and the core CPI slowed to 6.0% from 6.2% in April.
The inflation narrative changed little over the last month. U.S. BLS data highlighted that inflation has moderated for most consumer goods, but services, food, and energy remain a big problem.
The Producer Price Index, which measures wholesale inflation, showed no signs of easing when it was last released a month ago—April data, U.S. BLS.
A Bloomberg News story early last week pointed out that some measures of semiconductors, shipping containers, and fertilizer prices have come down.
Business Insider noted that lumber prices have tumbled recently, but we’re not seeing anecdotal evidence of slowing inflation creep into the broad-based CPI in a major way.
Look at the graphic below. Inflation outside of food and energy has roughly held within a 0.5—0.6% range in seven of the last eight months. The temporary slowdown in March occurred primarily due to a steep drop in used cars.
Bottom line
Investors have yet to see a peak in inflation, which raises odds that aggressive Fed actions will continue.
Furthermore, odds the Fed can engineer an economic soft landing are slowly receding, while China lockdowns haven’t ended and there has been no change in the situation in Ukraine.
What are investors looking for? The elusive soft landing and clarity on inflation, which would ease pressure on the Fed.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
New home sales plunged in April, falling 16.6% from March. New home sales, which make up more than 10% of all U.S. home sales, are tracked when contracts are signed while existing home sales are tracked when contracts close. That makes new-home sales a leading indicator of where the market is headed. - Bloomberg, May 24, 2022
The average four-year-old child laughs 300 times a day. By contrast, it takes more than two months for the average 40-year-old adult to laugh that many times. - Hidden Brain PodcastTwo
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