Join institutional investors, analysts and strategists from the world's largest banks: Subscribe today
Already have an account? log in
‘Crucial’ Inflation Data Produces Shrug
Inflation came in hotter than expected in March, closely-scrutinized data out Tuesday showed.
Headline CPI rose 0.6% MoM, versus estimates of a 0.5% rise.
The YoY print, expected at 2.5%, was 2.6%. Core rose 1.6% YoY, slightly more than expected (figure below).
"Don't extrapolate," TD's Jim O'Sullivan cautioned. "Base effects will boost the YoY data in April and May as well, but base effects will contribute to slowing again in later months," he added, noting that on the bank's view, the YoY
Do investors look more at CPI or PPI?
Since the market is primarily interested in corporate profits, it seems PPI should be more relevant. Not only it is more closely related to gross margin, but a good portion of listed companies’ revenue is intermediate goods.
As for CPI, the heavy adjustments erode its credibility. Not just basket selection and hedonic factors, but the whole owners-equivalent-rent thing is a major departure from reality.
All that said, I’m in the camp that expects meaningful inflation in the coming years, no matter how you measure it. Supply chain stress, de-globalization, pent-up demand, lots of money sloshing around, labor market dislocations, and a Fed that actively wants inflation above 2% . . . seems a good bet.
There is much angst about “whatever will bond investors do”. One feels for institutional bond investors who actually have to hold investment grade bonds. For individuals, there is no law that says “thou shalt own LQD and IEF”. There’s high yield, municipals, floating-rate notes, TIPS, even good old fashioned CASH. After all, we’re not talking about forever. When IG bonds yield enough to make them worth owning, they can again be a leg of the portfolio.