Continued CPI Volatility Makes it Hard to Read Inflation

Jun 15, 2023 | Bubble Monitor, No Bull Economics

A Fed pause seems to be good news for the market, albeit maybe not so great news for the US$ (which is supported by a relatively high interest rate). In any case, this rally could be premature for those willing to accept that Powell is leaving further rate hikes on the table for 2H23. This is especially notable given May’s advanced retail sales (recently released) which looked pretty strong as consumers are eagerly spending their gas money savings elsewhere.  

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CPI Commentary

While May’s CPI number looks tame, there are a lot of moving parts, and it is difficult to get an accurate read on a sustainable trend because of significant month-to-month volatility.

  • The CPI-U all items index increase of +4% for the 12 months ending May 31, 2023 was the smallest 12-month increase since the period ending March 2021, and May’s moderate +0.1% sequential (month/month) increase would be something to cheer about if only it can be sustained.
  • However, the first row of the table below reveals material volatility from month-to-month with April’s previous inflation number 4x May’s results.
  • Further, we see that May’s aggregate results benefit from a material -3.6% sequential decline in volatile energy prices which are unpredictable with gas prices up +0.6% already since the end of May.  
  • Used car & truck prices are also demonstrating material volatility, increasing an astounding +4.4% sequentially both during April & May while posting a -4.2% decline for the LTM period.
  • Notably, food costs benefit from moderating grocery store prices which are helping to offset restaurant menu prices which were 5x as high as food-at-home during May.
  • Finally, shelter costs, which also bear watching, were up +8% for the LTM period through the end of May.   

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