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10Y economy inflation

CPI Misses As Investors Get Possible Reprieve From Inflation Jitters

Do you feel better?

Ok, here comes CPI.

This is the headline data point this week and it comes as 10Y yields are looking to move sustainably above 3% and as the dollar is looking to extend a rally that’s now in its fourth week.

Last Friday, payrolls and AHE missed, but the dollar’s brief dip on the data was quickly bought, perhaps underscoring how difficult it’s going to be to put the brakes on the greenback short squeeze. Here’s BofAML:

This week, market focus will turn to U.S. CPI. Our economists expect another 0.2% m/m core CPI print on Thursday morning, unchanged from March. They anticipate core goods will see another slight decline, weighed down by apparel and autos. Though they look for positive prints in education and communication services. This should bring y/y core CPI up to 2.2% from 2.1% in March. PPI is also released this week, and we expect core to edge down slightly to 0.2% m/m.

“We estimate a 0.19% increase in April core CPI (mom sa), which would boost the year-over-year rate a tenth to 2.2% on a rounded basis, reflecting a slight pullback in apparel prices,” Goldman writes, while BNP notes that “expectations for April’s CPI report sync with the FOMC’s increasing confidence on the inflation outlook.” And that syncs with the market’s perception that a total of four hikes is possible in 2018, which in turn is what’s weighing heavily on EM sentiment.

You’re also reminded that breakevens are slavishly following crude around and there’s a chance that we end up in a self-feeding loop wherein higher crude drives inflation expectations higher and the Fed, spooked by that, is seen as being more aggressive, driving up real yields and further supporting the dollar.

Without further ado, it’s a miss, perhaps providing some relief to those concerned about another inflation scare and a Fed that gets pigeonholed into more hikes thanks the combination of late-cycle dynamics and ill-timed fiscal stimulus.

Estimates and priors

  • US CPI MoM, est. 0.3%, prior -0.1%
  • US CPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%
  • US CPI YoY, est. 2.5%, prior 2.4%
  • US CPI Ex Food and Energy YoY, est. 2.2%, prior 2.1%

Actual

  • CPI rose 0.2% vs est. 0.3%
  • Ex. food, energy m/m up 0.1%; est. 0.2%
  • Ex. food, energy y/y up 2.1%; est. 2.2%
  • CPI Y/y rose 2.5%; est. 2.5%

Dollar lower on the print – we’ll see if it snaps back like it did last Friday when payrolls and AHE disappointed:

DXY

10Y yields moving lower (and further away for 3% for those of you who care about imaginary lines in the sand):

10y

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6 comments on “CPI Misses As Investors Get Possible Reprieve From Inflation Jitters

  1. Anonymous

    The numbers for new and used vehicles look way low given what the industry is saying, could be a blip. Every time I sign in to comment I get a “URL too long” error.

  2. Ever look at PCE, the Feds do…so unnatural not to figure in rising gas prices and how it’s tentacles touch everything…don’t know if the numbers can be trusted, didn’t realize that health care went down in April to make up for ever-increasing gas…

    Saudi’s remind me of the 70’s Shah, they’re increasing the price constantly: 1) to have a great Aramco IPO, 2) to drain our pockets until gas reaches $100/bbl 3) the Saudi’s are the 3rd largest defense spending country, right after US and China–but their economic output, aside from oil, is nothing…who’s gonna pay for the next war, we are…not only in USDs, sad

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