US consumer prices rose sharply in February, but no more than expected, offering markets a pyrrhic victory of sorts.
To the extent you’re inclined to characterize as-expected prints as a reprieve under the circumstances, the relief will likely be short-lived. The conflict in Ukraine will pressure consumers on multiple fronts given the dramatic implications for commodities.
Headline CPI rose 7.9% YoY last month (figure below) and 0.8% MoM, the government said Thursday. Both prints were consistent with forecasts.
The core readings, at 6.4% and 0.5%, were also in line with expectations.
Beyond the notion that any print which isn’t hotter-than-expected is a good print, there wasn’t much to cheer in the data. The largest contributors to the all-items gauge were gasoline, shelter and food, all things people can’t generally go without.
The gasoline index jumped 6.6%, and the broad energy gauge 3.5% (figure below), with the latter representing the largest MoM advance since October, when the world was similarly confronted with the prospect of an acute energy crunch.
Energy prices have risen in 14 of the last 15 months. All major energy component indexes rose over the last year.
Food prices are rising inexorably. There’s no other way to describe the situation. The food at home gauge rose 1.4% last month, a dubious encore from January’s 1% increase.
The figure (below) is highly disconcerting and speaks to the notion that Americans’ trips to the grocery store are becoming more painful by the month.
All six major grocery store food group indexes rose last month. Fruits and vegetables posted the biggest monthly increase in a dozen years. The index for dairy products rose the most in 11 years.
At 8.6%, the 12-month increase in food at home prices was the largest since 1981 (figure below).
Beef prices are up 16% on a 12-month basis.
There was no respite anywhere in the core gauge, unless you count a small decline in used car prices. Indexes for recreation, furniture and car insurance all rose. The personal care products gauge posted its biggest monthly increase ever. Airline fares jumped more than 5% and apparel prices rose a fifth consecutive month.
The cost of medical care rose, as did prescription drug prices. New car prices rose, and both rent and owners’ equivalent rent jumped again, as the catch-up to the pandemic property surge continued.
All in all, the only thing “good” about February’s US CPI report was that the headline increases, scorching though they most assuredly were, didn’t come in even hotter.
Other than that, the latest read on US inflation was an unmitigated disaster. To suggest otherwise is to be deliberately obtuse.
Used car prices are down 0.2%!
Next month’s M-O-M % change gasoline reading is going to break someone’s Excel spreadsheet model. It’s my understanding that today’s reported figures didn’t capture much of the late-Feb spikes (…plus gas-at-pump prices tend to lag the crude oil prices by a few weeks, anyway, as I’ve heard from analyst comments).
Can post pandemic inflation and Ukraine chaos be tamed by turning Japanese? It’s an interesting area to explore because zirp and deflation have been part of Japan’s growth, or at least stability for decades. Maybe western economies are going super nova in a weird macro rebirth.
Related twitter thought:
ACEMAXX ANALYTICS
@acemaxx
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7h
Gita Gopinath expresses doubts whether the long-term #inflation pic is as dire as Mr. Goodhart thinks. She said declining numbers of #workers and rising #retirees could instead drive inflation lower, pointing to #Japan as an example, chart
@WSJEcon
Not to suggest inflation isn’t really as higher or higher than it seems but it just occurred to me to wonder what effect has the rapid acceptance of so-called meal kits (generally overpriced) had on the general upward rise in food prices? Also, the last two years has reduced the daily commutes, and correspondingly, the need for gasoline. Is inflation just based on the unit price of gas or on the cost for gas used?
Please keep in mind that gasoline goes into more than just Consumer/Commuter gas tanks. It’s an input cost for just about every other good and service out there. Plus, the issues with wheat and industrial metals just make an already bad setup even worse.
@Heisenberg. So in light of the situation, will the Fed and ECB accelerate tightening or, because the war is also likely to slow down growth if not provoke a recession, will they slow down tightening to not precipitate or aggravate a recession? And what margin of maneuver do EMs have?
Unmitigated disaster is a good description of everything happening right now, how the major indices are not at least 5% below where they sit today is surprising to me, because as bad as these numbers are, inflation is set to continue its unabated move higher. Dems are going to get demolished this December, I have started preparations for my USexit in 2024, not staying around for the clown show part deux.
Good call, evil twin. Good luck with the (eventual) move. RE: Major Indices, I still hear a lot of hope for a “quick resolution to the conflict”, as if this is just another silly stare-down over that flimsy Phase One Trade Deal with China back in 2019. Putin has just killed thousands, made a f*cking mess of major Ukrainian cities, and has the Western nations now beginning the long process of swearing off his nation’s commodities. Oh, by the way, the Ukrainians and Russians are NOWHERE NEAR any sort of diplomatic compromise on how this all ends, and why would anyone expect them to be after what’s already transpired in just a few short weeks? If that was my hometown being shelled, I’d expect more than a simple “sorry for the mess, I’ll be (mostly) leaving now, good luck with the clean up”. Go ahead, sell side, keep hoping for a quick resolution.
Russia is making sure everyone on Earth will be part of his chaos. Even the poor investors in China that have massive debt will see their hedged bets become far less profitable and less liquid. If anything global liquidity will eventually be like watching a polar vortex. Winter is coming.
India may actually be realizing how toxic their Russian buddies are:
“One reason is that even if a rupee-ruble exchange rate is pegged to the dollar for determining a notional exchange rate, we must keep in mind that the value of ruble is continuously sliding vis-a-vis the dollar,” said Amarendra Patil, a trade economist who formerly taught at the Indian Institute of Foreign Trade.
“This could make the payment system ineffective because of continuous erosion of one of the two currencies (ruble),” he added.”
Although beating dead horses isn’t a good thing, here’s a different look at the three amigos alliance. It seems like Putin picked a bad time play Russian roulette, because India is a weak friend and China isn’t as strong as it pretends and Russia will go bankrupt. Zimbabwe comes to mind with the rubles future value.
Sure gas and donut prices will go up in America but it doesn’t look like we’re headed towards economic failure. China’s connections to cross border currency contracts and complexities are not going to be helped with their Russian drinking buddies.
“China’s property developers have about $35 billion worth of U.S. dollar-denominated debt that will come due this year, she added.
“If we were to carve out the refinancing needs for those issuers that have already defaulted, that probably carves out about $15 billion out of that $35 billion,” said Di Chiara. ”
Yah, a few billion is chicken feed but the bigger story is the compounded influence of liquidity. Credit will be increasingly tight, if not frozen.
Looks like the chinese are manipulating the nickel market too…. from stocktwits:
That price action prompted the London Metal Exchange (LME), the world’s largest market for metals futures and options, to suspend trading. Perhaps even more than this unprecedented short squeeze, the LME’s decision to suspend trading is the real story here.
The LME stopped trading because commodities traders allege that the LME, which is owned by Hong Kong Exchanges and Clearing, needed to protect Chinese investors which were short nickel. ?
Tsingshan Holding Co., the company most central to the mayhem, reportedly had a paper loss in excess of $8 billion because of its short. In an interview with Reuters, Kingdom Futures CEO Malcolm Freeman said “There’s a very big short and a very big short who have been sparring,” suggesting that this back-and-forth is responsible for the market conditions.
The exchange introduced “emergency measures” in a number of metals markets. Not to be excessively dramatic, but this is giving GameStop vibes all over again. ?
To increase the number of parallels to 2021’s Memestock Madness, LME reportedly “cancel[ed] nickel trades” which took place over a period of eight hours. Sources interviewed by the Wall Street Journal say that they were unable to sell long positions and that it was unclear how they would be marked or closed.
Once trading was halted, LME took the opportunity to clear their books of “substantial short positions … [to] return stability to the market.” However, the consensus is that those long on nickel were unable to sell, while those shorting the metal were rescued by the exchange.
Globalization as we know it is dead. Hopefully, not the peace that came with such globalization.
I am guessing that the US will, over time, manufacture less in China (can’t trust China at all) and manufacture more in Mexico (slightly less untrustworthy than China and we can easily oversee what is occurring due to geographic proximity).