The CPI Shocker Everybody Expected

Last month the CPI rose 0.3% and markets were taken aback at the size of the increase. This month the CPI rose 0.4% … but Wall Street was on its game. In the media the BLS announcement was preceded and accompanied by “analyst expectations” of 0.4%. So despite the hard fact that the rate of CPI increase rose, that CPI inflation not only has halted its decline, but reaccelerated to the upside, everything’s all right because Wall Street had expected it. Stocks galloped higher after the release on the manufactured relief.

On an annual basis the story was similar; from January to February the harder-to-move year-over-year rate rose from 3.1% to 3.2%.

The spin machine had already been revved up. Reports cited “analysts” as expecting BLS to report a month-over-month 0.4% increase. Who these analysts are or how they were selected is not mentioned, but a close connection to Wall Street seems certain. It’s the same game analysts play with corporate earnings … lowball the expectations so the news can be framed as a victory.

Media interpretation is absurdly soft-pedaled. Reporting emphasizes that inflation is not moving down “in a straight line” … that latter qualification being necessary to avoiding suggesting to frenzied “retail” stock buyers that it’s not moving down at all.

So another hot CPI release is dismissed as “in line with expectations”, despite its being jarringly out of line with the narrative that consumer inflation is on a glide path to 2% heaven. That would mark an unmistakable reacceleration … 0.4% annualized is 4.91%. As everybody expected…

Well, not quite everybody. Apparently stocks are alone in their complacent assurance that the narrative is intact. The only question on the table is when the Fed will begin to cut rates. The question of what direction the next move might be isn’t worth mentioning. The Fed has its Wall Street marching orders.

Other markets were not so convinced. Treasuries sold off sharply … apparently they didn’t get the analyst expectations memo. Gold didn’t either, selling off sharply as well. Even bitcoin joined the dive. The bond market isn’t waiting for the Fed … it hiked rates today.

9 thoughts on “The CPI Shocker Everybody Expected

  1. Finster says:

    So how will the Fed respond? What it says doesn’t matter near as much as financial media would have you believe. It would prefer to cling to soft data like Fedspeak as long as it can, because it gives it plenty of latitude for bullish spin. The hard data – actual rates being set in the bond market – aren’t so compliant.

    But sketchy relevance doesn’t stop me from offering up opinions. The Fed has egg all over its face. It intemperately teased rate cuts late last year and has spent most of the time since frantically trying to stuff that toothpaste back into the tube. Its premise is that present monetary policy is tight, despite an abject lack of evidence for it. See the discussion here.

    Its latest tack is to merely put those putative rate cuts off, the most it can concede to the data without having to unpivot altogether. Stalling on cuts could conceivably work, but wouldn’t it have been so much better to have not gotten mired in speculation about future policy to begin with? That and the resulting easing of financial conditions is what’s behind the inflation resurgence to begin with. What if it’s not enough? Does the Fed really want to go down that “transitory” road again?

    It’s ironic. The Fed’s loose talk about possible rate cuts may well have pushed actual rate cuts further off, if not raised the prospect of further hikes.

  2. jk says:

    current conditions preclude a cut in june, and then all the meetings are too close to the election. so the earliest cut would be dec. i’d put the earliest hike then, as well.

    1. Finster says:

      If the Fed’s loose talk had any political motivation behind it, it’s doomed to backfire. Easy money only makes things worse when your problem is inflation. The last thing incumbents want right now is for inflation to be fresh in the public’s mind going into election day. Powell et al threw a coup de whiskey when they should have been tossing cold water.

      My guess is the Fed’s blunder was more influenced by its easy-money-loving Wall Street constituency, but that would still leave plenty of room for political calculation.

  3. Finster says:

    February PPI month-over-month clocked in this morning at 0.6%. Even hotter than the CPI, that makes it harder to dismiss CPI as due to data anomalies. Markets hiked rates across the curve, with the 1 year yield rising several more basis points. As if to put an exclamation point behind it, WTIC oil surged well past $80 on the heels of a blistering rally in copper prices as well. The GSCI (commodities index) is up 2.6% on the week.

    Media have generally been hard at work downplaying the significance of recent hot inflation prints with subtle semantic devices like ‘inflation’s not going down in a straight line’ and referring to it as ‘sticky inflation’ … walking on eggshells to avoid scaring the horses and denting the public’s enthusiasm for buying stocks at all time high prices.

    But inflation isn’t just not going down “in a straight line”. It’s not going down period. It’s not “sticky” either, it’s going up. As I’ve been warning all along, as long as we have galloping asset price inflation, consumer price inflation will be not far behind.

    1. Finster says:

      COMT – an ETF tracking the S&P GSCI commodities index – has gone hockey stick the past week or so. Enough to put it ahead of the hyped stock market for the year to date.

      1. Finster says:

        The Fed had better stomp on this tomorrow. I’m not holding my breath. But if it doesn’t, be prepared for more supply chain disruptions, bad weather, acts of corporate greed …

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