AFMC - 3 Things - CPI The Stock Market 'Casino' And Stagflation

2024-05-16 11:20:00 ET

Summary

• Wednesday’s CPI report was a big relief for the Fed after 4 consecutive upside surprises.
• The key metric was core CPI, which came in at 3.62% year over year vs last month’s rate of 3.8%.
• The problem is, inflation is almost exactly in-line with historical trend now and unemployment is well below trend.

Here are some things I think I am thinking about this week:

1) CPI comes in soft

Wednesday’s CPI report was a big relief for the Fed after 4 consecutive upside surprises. The key metric was core CPI, which came in at 3.62% year over year vs last month’s rate of 3.8%. This continues the clear downward trajectory that was so dominant last year. There were broad signs of weakness in the report with slowing rates of change in durables and services, but shelter remains a sticking point. The shelter component is still coming in at 5.5% year over year, well off its highs, but still way above readings we’re seeing in more real-time rent indicators. As I’ve mentioned many times in the last year this component intentionally lags and at 45% of the CPI it’s by far the largest component. In my view its direction in the coming year is what will drive the direction of CPI....

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