Those expecting a red-hot April inflation print in the US weren’t disappointed.
Consumer prices surged last month, data out Wednesday showed, with headline CPI rising 0.8% (figure below), four times the 0.2% gain consensus expected.
The range of estimates from more than five-dozen economists was 0% to 0.4%. So, the headline doubled the highest forecast.
This comes on the heels of March’s “hottest since 2012” print.
Core jumped 0.9% MoM, three times consensus (figure below). That marked the biggest increase in core since 1982.
“Nearly all major component indexes increased in April,” the BLS said. “Along with the index for used cars and trucks, the indexes for shelter, airline fares, recreation, motor vehicle insurance, and household furnishings and operations were among the indexes with a large impact on the overall increase.”
The YoY prints were also large upside surprises. The headline gauge rose 4.2% YoY (figure below). Consensus was looking for 3.6%.
Core jumped 3% on year, far hotter than the 2.3% the market expected.
The used vehicle index rose an astounding 10% in April (figure below). That was the biggest monthly increase in history. “It accounted for over a third of the seasonally adjusted all items increase,” the government noted.
Both food gauges (home and away) rose markedly. “The energy index decreased slightly, as a decline in the index for gasoline in April more than offset increases in the indexes for electricity and natural gas,” the BLS said. That would appear to bode ill — after all, gas prices are now rising thanks to the Colonial Pipeline hack.
Today’s numbers will feed the inflation narrative, which is already being used as a cudgel by Republicans seeking to stymie the Biden administration’s stimulus efforts.
As for markets, Nomura’s Charlie McElligott said “a marginal upside surprise should keep the slow-and-steady momentum of ‘reflation’ trend trades going, while a big beat could risk an unruly rates selloff, with a potential yield spike spooking equities.”
At the least, the Fed will need to press the “patient” message a bit harder now to convince markets that one month of noisy data coming out of the worst economic shock in nearly 100 years doesn’t count as “evidence” when it comes to injecting urgency into the onset of taper discussions.
“We’re all too cognizant that in making the observation that monetary policy is still reflecting concerns regarding downward consumer prices has the air of ‘fighting last year’s battle,’ [but] the risk of Japanification of western economies will persist long after the post pandemic norms are established,” BMO’s Ian Lyngen and Ben Jeffery wrote, ahead of the data.
“This implies that as opposed to the Fed being behind the curve, it’s actively engaged in the process of recalibrating investors’ expectations in an attempt to reflect a more refined relationship with inflation,” they added.
Only Rip Van Winkle should be surprised by these numbers. We have another month of thi; the comps will revert to soemthing more normal starting in June.
As a side note, large producers are (mostly) hedged against commodity prices but those hedges will begin to roll off in the months ahead.
I think the issue here is that tapering does nothing to address the underlying issues which involve massive supply contractions over the past year or so and minimal supply build up over the past decade. We never actually addressed the damaged of the GFC and instead just reflated assets. We made negligible investment in growing capacity or wages. The economy remains growth crippled and no amount of tapering will help. We need massive policy solutions and fast while maintaining low interest rates indefinitely.
We could spend $20 Trillion on US infrastructure and strategic mining and production and we would still be at a huge disadvantage to where we would have been had we not outsourced everything for the past 40 years. We could raise the minimum wage to $20/hr bring back pensions, forgive or refund all higher education, launch Single Payer Healthcare and punish companies going after unions or abusing “contract” workers and we would just barely be making a dent in the damage done to the population.
Indeed. It’s sad to hear the mainstream blaming these inflation spikes on fiscal stimulus. Many of the same people are also rattling their sabres these days. They just hand wave the whole part about wars requiring supplies that we don’t (and have forgotten how to) produce.
NO NO NO! We don’t pick winners! Don’t you remember Solyndra????
A step function in prices in a short time is not inflation. Prices that continue to grind up for years is inflation.