Boockvar on the CPI … and Waiting on Fuller Price Picture
From Peter Boockvar:
CPI rundown/Are we now in a time where dissents are the new normal?
The May headline CPI rose .5% m/o/m as expected and by .2% at the core level which was one tenth below the forecast. The y/o/y figures of 4.2% and 2.9% were as estimated due to rounding and up from 3.8% and 2.8% respectively in April. Energy prices jumped by 3.9% in the month led by a 7% rise in gasoline prices and now higher by 23.5% y/o/y. Electricity prices in particular rose by .6% m/o/m and 5.9% y/o/y. Food prices were up by .2% m/o/m and 3.1% y/o/y with ‘food away from home’ seeing a price gain of .3% m/o/m and 3.5% y/o/y, still exceeding ‘food at home’ where prices grew by .1% m/o/m and 2.7% y/o/y. The price of beef in particular fell back in May after the recent spike but still up 13% y/o/y.
Services inflation ex energy saw prices higher by .3% m/o/m and 3.4% y/o/y led again by rents. Owners’ Equivalent Rent rose .3% m/o/m after a .5% rise in the month before which was due to a calculation quirk. They are up by 3.3% y/o/y which is getting closer to reality for blended rents nationally. Rent of Primary Residence (which should replace OER) saw a price gain of .4% m/o/m and 2.9% y/o/y. Medical care prices rose by .3% m/o/m after two prior months of declines and up by 2.6% y/o/y. A statistical illusion continues to be how the BLS calculates health insurance as they tell us prices fell one tenth m/o/m and by 6.4% y/o/y. Obviously not real. Rather than measuring reality, they are measuring profit margins of health insurers.
Airline fares remain on fire, jumping by another 2.7% m/o/m and by 27% y/o/y. Hotel prices rose .5% m/o/m after a 2.8% spike in April and up by 5.1% y/o/y. Vehicle maintenance prices continued higher, up by .8% m/o/m and 6.1% y/o/y. We are getting some relief on auto insurance as prices here fell by 1.7% m/o/m and by 2% y/o/y.
Core goods prices were little changed again m/o/m, down one tenth and up by 1.1% y/o/y. Muted changes in car prices is the main factor. New car prices fell by .3% m/o/m and flattish y/o/y, up .2%. Used car prices were up by one tenth m/o/m and down 2% y/o/y. Apparel prices grew by another .3% m/o/m and by 4.8% y/o/y. I still think tariffs (as retailers stagger price increases) and now petrochemical and freight costs are flowing through. The prices of ‘household furnishings & supplies’ fell for a 3rd month, by .2% m/o/m but still up 2.4% y/o/y.
Watching out for the impact of higher computer memory prices, the price for ‘personal computers & peripheral equipment’ rose .2% m/o/m after a .9% spike last month and now up 1.3% y/o/y. These prices usually decline but depending on the hedonic adjustments with regards to the BLS. The price for ‘computer software & accessories’ were flat but after skyrocketing by 5% in April and 4% in March and up 14.5% y/o/y.
Bottom line, the data was about as expected but as mentioned earlier this morning, the full inflation story will only be complete after we see PPI tomorrow in light of the widespread cost pressures. Inflation remains the major economic pain point regardless of who has to absorb it. With the core rate miss relative to expectations, Treasury yields across the curve are down by 1 bp from where they were at 8:29am est. Inflation breakevens in the TIPS market are unchanged.
The fed funds futures market is pricing in a 96% chance of one rate hike by year end but we know so much depends on hearing where Kevin Warsh stands. While we all debate on what he wants to do, I think for the first time since Volcker, we are going to see more internal dissents in the coming years than we’ve seen over the prior decades since Greenspan when broad consensus was the goal.
Positions: None.
