Another brutal CPI report.
Headline CPI was 1.3% (17.1% annual rate). But that's outdated given recent gasoline declines.
What was brutal was core CPI rose to 0.7% (8.8% annual rate).
Headline CPI was 1.3% (17.1% annual rate). But that's outdated given recent gasoline declines.
What was brutal was core CPI rose to 0.7% (8.8% annual rate).
Here is the same one-month/three month graph for CPI. Normally would disregard this because food/energy volatile, especially so now given that gas prices have fallen since this report.
Surprisingly there was a lot more goods inflation than anyone (including me) would have expected a few months ago. Core goods inflation was higher than core services inflation for the second straight month.
Still looking over the last five months we're seeing some of the "rotation" people were looking for as goods inflation has fallen and services inflation has picked up. But services more important so core has picked up a little.
Overall inflation in the United States is still 1.2pp higher than in Europe (measured on a comparable basis). The six-month inflation rates are basically the same--largely reflecting the huge natural gas price increases in Europe.
Core inflation remains 2.3pp higher in the United States than the Euro area. Gap also very large over the last six months.
So far this year core inflation has risen at a 6.8 percent annual rate. It would need to fall to a 2.0 percent annual rate for the remainder of the year to match the May Survey of Professional Forecasters expectation. Expect another upward revision to that.
The decline in real average hourly earnings at this point is terrible, the fastest pace of decline in 40 years.
All of the above is what we know from the CPI report for June.
We do know more than just that report:
--Gasoline prices falling
--Nominal wage growth falling
--Fed tightening still working through the system
--Consumer spending slowing
We do know more than just that report:
--Gasoline prices falling
--Nominal wage growth falling
--Fed tightening still working through the system
--Consumer spending slowing
My conclusion: Fed will & should hike by 75bp at its next meeting. Should be prepared to do more depending on the data.
At this point fiscal policy should help too, the best option on the table being ~$500b of deficit reduction & Rx price slowing through reconciliation.
At this point fiscal policy should help too, the best option on the table being ~$500b of deficit reduction & Rx price slowing through reconciliation.
P.S. Here is the contributions chart breaking out cars, pandemic services and other. I think this has mostly outlasted its usefulness (and the role of individual micro stories was always overstated), but notably the "other" bar hit a record high for this cycle.
Correcting an earlier tweet by inserting the capitalized wordS: "Fed PROBABLY will & LIKELY should hike by 75bp at its next meeting."
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