If a relatively bland inflation print was desirable for market participants concerned about the possibility of an imminent surge in prices, February’s US CPI report delivered.
The headline gauge rose 0.4% MoM, in line with consensus. At 1.7%, the YoY print also matched expectations.
Concerns are growing that ultra-accommodative monetary policy and extreme fiscal largesse are a combustible combination that could eventually lead to sharply higher consumer prices, leaving the Fed behind the curve.
Of course, the Fed is actively seeking to push inflation higher than target in order to “make up” for past shortfalls. Critics argue that could exacerbate the situation.
Core came in below estimates — i.e., cooler than expected. The MoM print there was just 0.1%. The market was looking for 0.2%. YoY, core prices posted a 1.3% gain, also below estimates and the lowest since June.
“The softer core outcome is likely to be what the market focuses on and it should help to ease some of the bond market anxieties about inflation, but we suspect it will only be a temporary respite,” ING cautioned.
“The gasoline index continued to increase, rising 6.4% in February and accounting for over half of the seasonally adjusted increase in the all items index,” the government said. “The electricity and natural gas indexes also increased, and the energy index rose 3.9% over the month.”
The food index ticked 0.2% higher. The 12-month gain stood at 3.6% last month. The shelter index rose 0.2% (OER up 0.3%). Gains in recreation and medical care were juxtaposed with declines in the cost of air fares, used vehicles, and apparel.
If you’re desperate for signs of hyperinflation, you might point to the 1.8% rise in the fresh fruits index. That was the largest gain in eight years. But Americans don’t eat any fruit. (How much for a Snickers?) The gauge for meat, chicken, fish, and eggs posted a smaller increase in February compared to January.
There was little utility in digging any further into the release. With the exception of shelter and energy (and who really needs that, right?), it didn’t bolster the reflation narrative, let alone give the hyperinflation crowd anything to shout about. Base effects will begin to play a bigger role soon, and PMIs tell us it’s just a matter of time before prices surge.
“Inflation has been gradually rising since Q2 2020, but there will be a step change in March and April with the economy in a very different position to what it was 12 months before,” ING went on to say, in the same note mentioned above. “Headline inflation is set to hit 3% in April as prices in a vibrant, reopened, supply constrained economy contrast starkly with those of 12 months before when the situation looked dire.”
Until then, I guess.
I got 2 estimates to fix my roof in the middle of January. I’m pulling the trigger now and both estimates have gone up by over 10% in the intervening 7 or so weeks.
Good thing plane tickets are cheaper…
Well, I mean you’re comparing prices in the hottest market on the planet (the US housing market) with those in the coldest (air travel). So, yes, there will be a pretty stark juxtaposition there.
I chose plane tickets because it’s laughable, but in reality where do I pick up any savings?
Groceries? Nope. Gas? Nope. Utilities bills? Nope. Even my streaming services are going up. I suppose if I were in the market for a used car… but mine is still fine and I’m glad that it is. If I were in the market for one I might pay a little less for it it, but it would still be an unwelcome expense.
My expenses are rising at a rate that is higher than .4% month over month and while this may not be true for many or most it certainly doesn’t feel good.
A bit of a reality check on the widely accepted inflation narrative:
“The stimulus money isn’t going to be spent, Bank of America says”
But analysts live in a rarified world where everyone has cash to burn and two Peletons.
The truth is that, even if a goodly portion of it is spent, it’s a one time sugar boost. The multiple would have to be “tremendous” for it to mean anything beyond a couple of quarters (for the consumer/tax payer/employee support portion).
Roofing material is oilbased and supply houses pass prices to contractors very quickly. I had hopes for Airlines but this is the worst time for fuel costs to rise for them. Hurry up and buy those tickets as they will be less inclined to renegotiate as your roofer has.
I might have had I not spent a few extra thousand on a roof…
Regarding the exception of shelter, hedonic adjustment will keep inflation for this category in check.
When the price of shelter increases, consumers substitute it for a tent in a park. The shelter component of the CPI will actually decrease for some consumers while they still enjoy the benefits of shelter.
Hyperinflation is probably different this time, and as some may recall, “No man ever steps in the same river twice, for it’s not the same river and he’s not the same man.” Heraclitus
See WIKI: “The DJIA closed at a record 18,312 on May 19, 2015[8] before slowly falling to a low of 17,504 and then partially recovering to its secondary closing peak of 18,102 on July 16.[9][10]
The stock market slowly slid thereafter, reaching a low of 17,403. The NASDAQ Composite peaked on July 17, 2015 at 5,219. Apple Inc.’s stock peaked at $133.00 on February 20, 2015, reached $132.37 on July 20, 2015 and slid to $105 by August 21, 2015.[11]”
Ponder: FRED swap rate spreads and 10 yr treasury:: https://fred.stlouisfed.org/graph/?g=BQ4X