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2024-05-15 08:49 by Karl Denninger
in Macro Factors , 329 references Ignore this thread
[Comments enabled]

Let's do the forward look first, since that's what really ought to matter -- PPI.

The index for final demand less foods, energy, and trade services moved up 0.4 percent in April after rising 0.2 percent in March. For the 12 months ended in April, prices for final demand less foods, energy, and trade services increased 3.1 percent, the largest advance since climbing 3.4 percent for the 12 months ended April 2023.

So much for the forward looking indices relaxing.  Uh, nope.  And what is especially troublesome is that both goods and services moved in unison.

Remember we are a majority-services economy.  People often disregard goods inflation in the pipeline with some level of justification because its simply a smaller piece of the basket and is subject to quite a bit of discounting as you go through the stages of production.  Neither is true for services.

Now there is one piece of the goods side that could be reasonably dismissed, particularly since a large part of it has come back out in the last couple of weeks: Gasoline prices.  Some will point to foods showing negative price changes but nearly all of that is due to fresh and dry vegetables, which are not a large component of the index in any event (nor of most people's diet.)  Natural gas was also down but this is a seasonal thing that is expected; winter is over, so residential gas demand is now nearly all for cooking and water heating, which is the usual pattern -- and leads to lower prices in the spring.

There is a "pig in the python" problem in energy materials in the intermediate table, however, and strongly suggests that the passthrough will wind up in the CPI in two to three months.  That's not good as, of course, that's right into the maw of the summer travel season.  We'll see.

Nothing else really stands out to me beyond ordinary seasonal variation.

Then we have the CPI....

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis, after rising 0.4 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.

The index for shelter rose in April, as did the index for gasoline. Combined, these two indexes contributed over seventy percent of the monthly increase in the index for all items. The energy index rose 1.1 percent over the month. The food index was unchanged in April. The food at home index declined 0.2 percent, while the food away from home index rose 0.3 percent over the month.

Ex food and energy was up 0.3%, which is down one tick from last month.  But all less food and energy is still up 3.6% over the last 12 months which remains close to double the so-called "2% target."

As in the PPI report there was a spike in gasoline which was coincident with the eclipse -- whether that was pure gouging or not I do not know, but it was definitely there and it definitely reflected back into the CPI (as it should have.)  That's a one-off and most of it has come back out already.

But -- both OER and rent were still up wildly strong -- over 5% annualized.  Of course there will be people that really like that idea but facts matter and non-discretionary purchases, with housing among them, don't just have to stop going up at close to triple the so-called target they must actually come down in gross terms.  

What's much worse is that hospital and related services, along with elderly care, are rising at a crazy rate, up at close to 8% annualized and 13.9% for elderly people.  Again I remind you these are compounding figures so for elderly people this means a double in six years.  How anyone thinks that can continue on a forward basis is beyond me -- there's just no money to do that, and its the driver of CMS cost acceleration although the latest Treasury Statement shows slight improvement over last fiscal year.  There is no way to know at present if that's a deferral of payment out of CMS (it might be) or if there's real progress.  We simply need more time to know.

Car insurance continues to wildly spike higher -- up 1.4% this month alone and 22.6% annualized.  That has not resolved, so the idea that this was a "one off" is thus far just plain wrong.

The market seems to love this number -- but I'll take the under on that one.  The IRX ticked up a couple while the 10 year is down materially, further widening the spread which just continues the run of what, on an objective basis, certainly appears to be an illogical Pavlovian response in asset markets.

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