US Macro Updates

Key takeaway: Headline CPI and Core CPI both came in softer than expected in October. Firstly, given the sharp drop in energy prices, a reduction in headline inflation was expected. Second, due to the large base effect from last October (0.5% m-o-m in October 2022), year over year headline CPI was also expected to drop significantly. However, in a far more important development, both headline and core CPI printed even lower than what markets were expecting – resulting in a face ripping rally across both equities and bonds. Commodities less food and energy commodities decreased 0.1% m-o-m. This category has printed negative for 5 months in a row. New vehicles and used car prices also declined in October. However, the most important aspect of October’s CPI report, was the drop in shelter inflation from 0.6% in September to 0.3% in October. The index for rent rose 0.5% in October and the index for OER rose 0.4%. Even with the reduction, the shelter index is still 6.7% higher compared to last year – accounting for 70% of the total increase in core CPI. As this number trends back down to a range of 3-4%, it will bring core CPI lower than the current level of 4%. The final point to note was that Core Services ex Housing, Chair Powell’s favourite measure, increased a bit on a 3 month annualized and 6 month annualized basis (approximately 5.3% and 3.4%). However, that was mostly attributable to base effects of a rolling 3 month and 6 month calculation. Core Services ex Housing now stands at 3.5% on a year on year basis and, even though it is higher than preferred, it will give the Fed significant comfort in their war against inflation.  

• CPI increased 0.0% m-o-m (expected 0.1%) and 3.2% y-o-y (expected 3.3%)
• Core CPI increased 0.2% m-o-m (expected 0.3%) and 4.0% y-o-y (expected 4.1%)

12th Oct 2023

Key takeaway: After having bottomed at 3.0% in June, headline CPI was widely expected to reaccelerate given the recent increase in energy prices and the base effects from last years inflation numbers. Headline inflation for September 2023 printed at the same level of 3.7% as last month. However, that was slightly above consensus expectations of 3.6%. The m-o-m number at 0.4% was also slightly above consensus expectations of 0.3%. Core inflation, which is CPI ex-food and energy, came in line with expectations at 0.3% m-o-m and 4.1% y-o-y. Core goods prices continued to be in deflationary mode. Commodities less food and energy commodities have printed a negative inflation growth number for 4 months in a row. Similarly, used cars and trucks prices have also declined for 4 months in a row. Core services on the other hand continues to print high inflation growth numbers. The biggest news component of this month’s CPI print was in fact the sharp rise in Shelter inflation. One of the core assumptions of the Fed has been that shelter inflation will come down rapidly in line with the other private measures of rent. However, September saw a sharp jump in m-o-m shelter inflation. The fact that the rise in the shelter component was significantly attributable to Owners Equivalent of Rent was even more concerning since OER contributes 25% of headline inflation. OER jumped up sharply from 0.4% in August to 0.6% in September. Lastly, Powell’s favourite measure of core services ex-housing remained mostly steady (but is higher than where the Fed would like it to be) .  

• CPI increased 0.4% m-o-m (expected 0.3%) and 3.7% y-o-y (expected 3.6%)
• Core CPI increased 0.3% m-o-m (expected 0.3%) and 4.1% y-o-y (expected 4.1%)

13th Sep 2023

Key takeaway: The latest August CPI report was expected to show a further re-acceleration of inflation after July. That is precisely what it showed. Specifically, we have seen energy costs rise significantly in recent weeks. Accordingly, the y-o-y CPI print was up from 3.2% in July to 3.7% in August. This was slightly higher than consensus view. Similarly, the monthly print was up 0.3% – higher than consensus expectation of 0.2%. Core inflation was also up a significant 0.6% m-o-m. However, despite all the increases in core and headline CPI, the key point of the August inflation report was the substantial rise in core services ex housing inflation – aka “The Powell Indicator”. This indicator was up an approximate 0.6% m-o-m, a significant re-acceleration from recent months. On a 3m annualized, 6m annualized and 12 month basis, core services ex housing grew at approximately 3.2%, 2.9% and 4.0% respectively. Almost every key category in services experienced re-accelerating inflation. However, the most significant increases were in medical services and transportation (more specifically airfares which increased a sizeable 4.9% m-o-m. The report overall keeps the pressure on both the Fed and consequently bond yields.  

• CPI increased 0.3% m-o-m (expected 0.2%) and 3.7% y-o-y (expected 3.6%)
• Core CPI increased 0.3% m-o-m (expected 0.2%) and 4.3% y-o-y (expected 4.3%)

10th Aug 2023

Key takeaway: The most important economic data point is here. And for some it has turned to be a non-event! The latest July CPI report was expected to show a re-acceleration of inflation. That is precisely what it showed. But the pace of re-acceleration or the components of underlying re-acceleration were not stark enough to spook the markets. Little surprise then that the market perceived the latest CPI data as good news! Firstly, headline inflation accelerated from 3.0% to3.2%. However, on a 3-month annualized basis, headline CPI is as low as 2.0%. Second, core inflation remained more or less static. Y-o-y core inflation moderated somewhat from 4.8% to 4.7%. Again, however, on a 3-month annualized basis, core inflation is as low as 3.2%. Lastly, Chairman Powell’s favourite measure of Core Services Inflation Ex Housing remained fairly steady in July. While medical services inflation cooled further into deflation territory, other segments like transportation services, recreation services and education services accelerated compared to June. Two of the key reasons for the disinflation narrative in this latest inflation report was the fall in used car price inflation (minus 1.3% m-o-m in July) and the fall in commodities ex. food and energy (minus 0.3% m-o-m in July). Commodity prices, in general, have been increasing in the past few weeks. This puts greater spotlight now on the next inflation report. 

• CPI increased 0.2% m-o-m (expected 0.2%) and 3.2% y-o-y (expected 3.3%)
• Core CPI increased 0.2% m-o-m (expected 0.2%) and 4.7% y-o-y (expected 4.7%)

12th Jul 2023

Key takeaway: The latest June CPI report was really all about Core Inflation and specifically Chairman Powell’s favourite measure of Core Services Inflation Ex Housing. Firstly, core inflation – which strips out the volatile components of food and energy, increased only 0.2% m-o-m. This was the lowest m-o-m reading in almost 2 years! Recall that even the May headline CPI print had been low, but core inflation in May was still 0.4% m-o-m. In comparison, Core CPI in June at 0.2% was low and beat expectations as well. Secondly, Core Services Ex Housing also printed a substantially low number. The 3 month annualized rate of core services inflation ex housing was just 1.5%! This was the standout feature of the latest CPI report. One of the main reasons for the low print was the drop in airline fares index by 8.1% m-o-m. Other categories like education services, medical care services, etc also registered either negative m-o-m prints or substantially low inflation. Finally, the icing on the cake was also a drop in Shelter Index and more specifically the Owners Equivalent Rent Index. The Shelter Index, which accounts for 34% of the overall CPI basket, increased 0.4% m-o-m – a drop from the 0.6% in May. More specifically, the Owners Equivalent Rent Index, which drives the Shelter Index, also dropped to 0.4% m-o-m from 0.5% (which had been the level for the past few months). The equity markets response to the print was hardly surprising then!

• CPI increased 0.2% m-o-m (expected 0.3%) and 3.0% y-o-y (expected 3.1%)
• Core CPI increased 0.2% m-o-m (expected 0.3%) and 4.8% y-o-y (expected 5.0%)

13th Jun 2023

Key takeaway: The latest May 2023 CPI report had some interesting points to note. Firstly, headline CPI continued to drop substantially, primarily on account of drop in energy prices. Headline CPI was 4.0% in May – a large drop from 4.9% in April. On the other hand though, core CPI still remained elevated at 5.3% y-o-y and 0.4% m-o-m. Given that peak Core CPI was 6.6%, there hasn’t been much of a decrease in this key metric. However, a large part of core CPI’s chart behavior is attributable to the shelter component (which is ~35% of the CPI basket) . There are 2 key inferences to draw here. Firstly, core services CPI ex-housing has indeed come down substantially. This favorite metric of Chair Powell registered 0.2% m-o-m in May. On a 3-month annualized basis, this metric sums up to ~2.5% now – which is within striking distance of an over 2% inflation target. On the other hand, shelter inflation is still elevated. M-o-M shelter inflation jumped back up again from 0.4% in April to 0.6% in May. The drop in the earlier month of April was attributable to a 3.0% drop in lodging away from home. This category reversed to a positive 1.8% increase in May. The more important Owners Equivalent Rent of Residence remained elevated at 0.5% m-o-m. The Fed (and the broader market) is riding on shelter inflation coming down substantially in the 2nd half of 2023. The Residential Real Estate market, in the meantime, is having a bit of a resurgence.  

• CPI increased 0.1% m-o-m (expected 0.2%) and 4.0% y-o-y (expected 4.1%)
• Core CPI increased 0.4% m-o-m (expected 0.4%) and 5.3% y-o-y (expected 5.3%)

10th May 2023

Key takeaway: After 2 months of adverse inflation surprises in Jan and Feb, March had shown some positives on the inflation front and April helped further in that effort. While month on month readings for both headline and core (0.4%) were in line with consensus expectations, headline CPI fell to 4.9% on a y-o-y basis. This is the first time that the number has broken into the 4 handle in many months. Most importantly though, Chairman Powell favorite measure – Core Services Ex Housing increased just a meagre 0.1% m-o-m. The 3-month annualized number has also now fallen to a reasonable 3.4%. The drop in this measure was largely attributable to Transportation – which well from a +1.4% in March to a -0.2% in April! The inflation rate of most other types of services also cooled in April. Finally, shelter inflation dropped a substantial amount as well – from 0.8% in Feb to 0.6% in Mar to 0.4% in Apr. Risk markets generally cheered in immediate response and the 2 year note yield fell 6 basis points in immediate response as well. However there were 2 negatives points to note as well. First, the used car price index increased from -0.9% in Mar to +4.4% in Apr. Thats a sizeable jump and puts a bit of a question mark on the goods deflation story. Second, while headline shelter inflation softened, most of that fall is attributable to Lodging Away From Home and not in the more important Owners Equivalent Rent (which has a 25% weight in the CPI basket). 

• CPI increased 0.4% m-o-m (expected 0.4%) and 4.9% y-o-y (expected 5.0%)
• Core CPI increased 0.4% m-o-m (expected 0.4%) and 5.5% y-o-y (expected 5.5%)

12th Apr 2023

Key takeaway: After 2 months of adverse inflation surprises, March showed some positives on the inflation front. And risk markets have latched on to it with both hands! Dow Futures were up 200 points in immediate response. Lets look at the details. Headline inflation came in lower than expected (o.1% vs 0.2%). Core inflation came in as expected (0.4% vs 0.4%). The major drop in inflation was in the Shelter component. Owners equivalent rent of residence increased 0.5% m-o-m vs 0.7% in Feb. This was one of the key drivers that caused the lower print. And of course, the Energy component printing a huge minus 3.5% helped the headline inflation lower. However, it is key to note that core services ex housing is still high at ~5.7% y-o-y or about 4.0% 3-month annualized basis! The last point to note is that used car and trucks fell 0.9% m-o-m. This is still in contrast to the positive numbers that have been a feature of the Manheim used car index for the past 3 months! In summary, while markets might have taken this CPI print in their stride, the pressure on the Fed has not likely abated with these numbers. 

• CPI increased 0.1% m-o-m (expected 0.2%) and 5.0% y-o-y (expected 5.2%)
• Core CPI increased 0.4% m-o-m (expected 0.4%) and 5.6% y-o-y (expected 5.6%)

14th Mar 2023

Key takeaway: Had the US banks fiasco not happened last weekend, markets would have been more reactive to today’s inflation print. However, given what transpired over the weekend, today’s CPI was almost a non-event. Yet, it is key to note that core inflationary pressures still persist – and in a significant way. Core CPI was up 0.5% m-o-m, accelerating from 0.4% last month. On a year on year basis, 5.5% core inflation still remains too high for the Fed’s comfort. Moreover a large part of the inflation increase was services – both housing and core services ex housing. Categories which increased in Feb included shelter, recreation and airline fares. The 3-month annualized core services ex housing inflation rate inched up a bit to above 4%. Used car inflation still printed negative in Feb (minus 2.8%). Worth remembering that the Manheim used car index has been rising for the past 3 months! In short, while the markets might have taken this CPI print in their stride, the pressure on the Fed has not abated at all with these numbers. 

• CPI increased 0.4% m-o-m (expected 0.4%) and 6.0% y-o-y (expected 6.0%)
• Core CPI increased 0.5% m-o-m (expected 0.4%) and 5.5% y-o-y (expected 5.5%)

14th Feb 2023

Key takeaway: And the big day is finally here! While headline numbers show that CPI data (both headline and core) was in line with expectations, there is more to analyse below the surface. Firstly, energy prices were up 2.0% m-o-m which contributed to the large uptick in headline inflation from 0.1% in December to 0.5% in January. Second – used car prices were down 1.9% m-o-m. That’s in contrast to some of the private measures which have been showing that used car prices have been inching up. i.e. this increased might show up in the Feb release. Third – apparel was up significantly at 0.8% m-o-m compared to 0.2% in December. Fourth – shelter inflation still remains uncomfortably high at 0.7%. Lastly, “Super Core” or Core Services Ex Housing was up approximately 0.3% on a m-o-m basis. Remember this is the measure Chair Powell looks at and at approximately 6% y-o-y, it is still way to high! One of the key components of “Super Core” – transportation services was up 0.9% m-o-m. Last month’s data point on transportation services was substantially revised up as well. In short, while the numbers looked ok on the surface, the details did not look all that good. 

• CPI increased 0.5% m-o-m (expected 0.5%) and 6.4% y-o-y (expected 6.2%)
• Core CPI increased 0.4% m-o-m (expected 0.4%) and 5.6% y-o-y (expected 5.5%)

12th Jan 2023

Key takeaway: This was arguably the most watched data point across the world! And when it came, neither did it disappoint nor did it cheer! At least on headline. But there was one particular point in the report which was worth noting. Services less rent of shelter accelerated from 0.0% in Nov to 0.4% in Dec. Services less medical care services accelerated from 0.5% in Nov to 0.7% in Dec. Indeed these 2 numbers include energy inflation. But it is important to once again to remind everyone of what Mr Powell spoke about in the recent past – Focus on core services inflation! Nonetheless, it was heartening to see headline fall to a negative 0.1% and core come in line with expectations at 0.3%. Another surprise in the detailed data was apparel inflation accelerating from 0.2% to 0.5%.  Lastly, even though we know that the Fed is looking at real time measures of rent (which are falling), it is still important to note that Shelter inflation remains very high at 0.8% m-o-m (and accelerated from 0.6% in Nov)

• CPI declined to -0.1% m-o-m (expected 0.0%) and 6.5% y-o-y (expected 6.5%)
• Core CPI increased 0.3% m-o-m (expected 0.3%) and 5.7% y-o-y (expected 5.7%)

13th Dec 2022

Key takeaway: Another month – another positive surprise on inflation ! But there was a key difference in market reaction between the October print and the November print. When October’s core inflation printed below expectations at 0.3%, Dow Futures were up 800 points within 5 minutes of the CPI release at 8.30am EST. The Dow closed 3.5% up that day on 10th Nov. In similar fashion, Dow Futures were up 500 points within minutes of the November CPI release today. But by mid-day the Dow had given up all of its gains and finally closed the day 0.3% up only! Why the difference in market reaction though? There might be multiple reasons for this and it is hard to know for certain. But, like I have mentioned in the past, with passage of time, attention will shift from “rates” to “earnings”. Recessionary data has been gaining steam and the path to a soft landing has been narrowing (acknowledged by Powell as well!). The CPI data itself was benign all round – Almost all categories recorded a decrease in m-o-m inflation. The all important services category registered some of the largest declines in categories like medical care services and airline fares. New vehicles and Used cars, which accounts for almost 8% of the CPI basket, grew 0.0% and minus 2.9% respectively. Shelter continued to grow at a high 0.6% – but we now very well know how the FOMC thinks about this component of inflation (read here). In summary, we can expect inflation to continue its path downward. I, for one, believe it might not move down at the same pace as markets are currently pricing (forward inflation swaps). But we will know that for certain only in hindsight. In the meantime, I believe it is time to shift focus to earnings!  

• CPI increased 0.1% m-o-m (expected 0.3%) and 7.1% y-o-y (expected 7.3%)
• Core CPI increased 0.2% m-o-m (expected 0.3%) and 6.0% y-o-y (expected 6.1%)

10th Nov 2022

Key takeaway: One sentence to describe today’s CPI release. “Dow Futures were up 800 points within 5 minutes of the CPI release at 8.30am EST!). After 2 months of consecutive higher prints on inflation, CPI in October finally came in lower than expected! And fairly substantially! Core CPI increased 0.3% m-o-m when expectations pointed to a 0.5% rise. Almost every category in the CPI grew at a lower rate or actually declined compared to the previous month – including food, new vehicles, used cars and apparel. But the notable reduction was medical care commodities and services (which collectively account for almost 8% weightage in the CPI basket). Medical care services fell 0.6% m-o-m compared to an average of plus 0.6% in the last 6 months. A word of caution though – Shelter which is one of the stickiest components of CPI actually increased to 0.8% from 0.7% in September. 

• CPI increased 0.4% m-o-m (expected 0.6%) and 7.7% y-o-y (expected 8.0%)
• Core CPI increased 0.3% m-o-m (expected 0.5%) and 6.3% y-o-y (expected 6.5%)

13th Oct 2022

Key takeaway: Another month – another high CPI print. 8.2% y-o-y. In response, the S&P500 opened almost 2.5% down. But when you dig a bit deeper the report was not that bad! Here’s why. Core CPI m-o-m, which matters the most, increased 0.6% for the third month in a row. That’s uncomfortably high. Shelter increased 0.7% again which is also way too high. However, used car prices fell 1.1%. Apparel fell 0.3% and medical care commodities also fell 0.1%. The transportation index was higher because of an increase of 0.8% in air fares. But air fares had fallen 7.8% and 4.6% in the 2 months before. Even though rent was up 0.7%, private indexes of rent has been falling in the past months and gradually will reflect in the BLS CPI calculations. Medical Care services, is a big component of CPI and has been increasing a lot in the past months. It is expected to moderate post October as well.      

• CPI increased 0.4% m-o-m (expected 0.2%) and 8.2% y-o-y (expected 8.1%)
• Core CPI increased 0.6% m-o-m (expected 0.5%) and 6.6% y-o-y (expected 6.5%)

13th Sep 2022

Key takeaway: Unbelievable ! This is why forecasting is such a rough game. This inflation report was all about core / sticky / entrenched inflation. Headline (0.1%) came in higher than expected and fuel inflation fell as expected. But it was not enough to offset the rise in the core, sticky components of inflation. The most important being Shelter, which rose a substantial 0.7%. Airline prices fell, but lesser than expected. And medical services prices rose substantially as well. In response to this inflation report, dont get fixated on whether the Fed will raise 75 bps or even 100 next week. What is more important is that it implies higher rates for a much longer period of time that markets were pricing in before this print!     

• CPI increased 0.1% m-o-m (expected minus 0.1%) and 8.3% y-o-y (expected 8.1%)
• Core CPI increased 0.6% m-o-m (expected 0.3%) and 6.3% y-o-y (expected 6.1%)

10th Aug 2022

Key takeaway: Good news finally! Headline CPI was anyways expected to be lower, thanks to the fall in crude oil price in July. However, the big surprise from this July inflation print was monthly Core CPI increase of 0.3% which was lower than expectations and much lower than June’s 0.7%. There are a few points of note though. Firstly, one month does not make a trend. So lets not throw caution to the wind. Second, shelter, which is a stick component of core inflation, still remains quite high. Used car prices came down as well, but need to be tracked in subsequent months. And finally reducing airline fares also had a big contribution to the lower print and they are quite volatile. Risk assets are celebrating though!     

• CPI increased 0.0% m-o-m (expected 0.2%) and 8.5% y-o-y (expected 8.7%)
• Core CPI increased 0.3% m-o-m (expected 0.5%) and 5.9% y-o-y (expected 6.1%)

13th Jul 2022

Key takeaway: Doom and Gloom! The 1.3% m-o-m increase beat even May’s gigantic 1.0% increase. But what was really worrisome was the continuing increase in core inflation. But this was expected to some extent. Shelter is a sticky component of core CPI and the runaway house prices over the past year are working their way into the shelter component of CPI. Another aspect which was worrisome was the increase in certain goods inflation – like used car prices which were up 1.6% m-o-m. In March, when economists were calling for peak inflation, used car prices had fallen 3.8% m-o-m. Yet, it is probably time to be more optimistic in the markets regarding peak inflation. Dont lose sight of the fact that prices across the entire commodity complex have crashed starting mid-June, inventories have been piling up, retailers started offering discounts in July and gas prices at the pump levelled off as well!     

• CPI increased 1.3% m-o-m (expected 1.1%) and 9.1% y-o-y (expected 8.8%)
• Core CPI increased 0.7% m-o-m (expected 0.6%) and 5.9% y-o-y (expected 5.7%)

10th Jun 2022

Key takeaway: This was a print worthy of an 800 point drop in the Dow like we saw in the first hour of trading. A rip roaring inflation number! Like I mentioned previously, it is way too early to call a peak in inflation. 1% m-o-m rate of increase is gigantic. Here are some of other finer points you got to know. Used Cars and Apparel both increased m-o-m after having declined in April which indicated that goods demand has not softened as much. Shelter rose 0.6% (4 consecutive months of 0.5% or higher). Remember again – this is a sticky component! Lastly, energy prices roared up again, but that was expected given May oil price gains after brief declines in April. And if the first 10 days of June are any indication of the rest of the month, this component simply gets worse.     

• CPI increased 1.0% m-o-m (expected 0.7%) and 8.6% y-o-y (expected 8.3%)
• Core CPI increased 0.6% m-o-m (expected 0.5%) and 6.0% y-o-y (expected 5.9%)

11th May 2022

Key takeaway: This month’s reading is precisely why calling a peak in inflation is so tough and perilous to do (see last month’s comments). In March 2022, core inflation moderated to 0.3% m-o-m. This figure is back up to 0.6% ! Moderating goods inflation was expected – given the economy is opening up. The focus is really on services. For instance, Transportation jumped 3.1% and Medical Care rose 0.5% m-o-m. Shelter, which is a sticky component of core inflation, increased 0.5% for a third month is a row. As the economy shifts back from stay-at-home goods consumption to out-and-about services consumption, entrenched wage inflation becomes supremely paramount.   

• CPI increased 0.3% m-o-m (expected 0.2%) and 8.3% y-o-y (expected 8.1%)
• Core CPI increased 0.6% m-o-m (expected 0.4%) and 6.2% y-o-y (expected 6.0%)

12th Apr 2022

Key takeaway: What matters most from a monetary policy perspective is Core CPI – month over month. And the March print of 0.3% gives hope that core inflation might finally be peaking. However, 2 points of caution to note. First, shelter (i.e. rent) rate of inflation still remains high (0.5% mom). Second, a large portion of the drop in core inflation was due to falling used car prices. This was expected since used car prices had really gone through the roof. In summary, the lower core inflation print gives markets hope. But it is too early to say. Keep tracking!  

• CPI increased 1.2% over last month (expected 1.2%) and 8.5% year over year (expected 8.4%)
• Core CPI increased 0.3% over last month (expected 0.5%) and 6.5% year over year (expected 6.5%)

10th Mar 2022

Key takeaway: A 40-year high! More importantly, this number does not capture much of the massive oil price increase post start of invasion. So the CPI is yet to peak. Far from it. Another key point is the index increase of the “Shelter” component of CPI (which is one of the largest components of the index). It increased 4.7% (largest increase since May 1991). The “Shelter” component in CPI tends to be structural and sticky. Fasten your seat belts. This ride is going higher! 

• CPI increased 0.8% over last month (expected 0.8%) and 7.9% year over year (expected 7.9%)