CPI And Jobless Claims: Steps To Stagflation

| About: SPDR S&P (SPY)

Summary

CPI was better than we feared but moving higher.

That said, core CPI is consistently running at 2%.

Transitional flips in oil up and dollar down should lift the overall CPI down the road.

Jobless claims show slight weakening.

More inflation and a slower economy is stagflation, which we think, is a stock market negative.

We reported earlier in the week that we thought there was risk to the CPI number. It was better than we thought but seems like more of a risk than the Fed is talking about.

Here are the numbers reported today at 8:30.

Nov Dec Jan Feb Mar Apr May 12 Mos
Topline 0.1 -0.1 0 -0.2 0.1 0.4 0.2 1%
Core 0.2 0.2 0.3 0.3 0.1 0.2 0.2 2.2%
Click to enlarge
Click to enlarge

The top line number (it's also called the headline number) is elevated of late. Simple math, over the last 3 months, it has picked up to about a .2% average, which is over the 2% Fed mandate of inflation.

Core, which excludes the volatility from food and oil is already at a 2.2% annual run rate. That number has been steadfast.

The Fed made mention yesterday in their release that the low oil and high dollar were "past" events holding back inflation, adding the word "past." Previously, they had said that those factors would hold back inflation. Now implied by the adding of the word "past," they think it's a thing of the past. These factors will seep into inflation.

They raised their inflation expectations yesterday (as we reported). We are surprised that they were not more "vocal" about inflation given two factors:

1) CPI core is unwavering and already at their 2% mandate or slightly above.

2) Their transitory factors of oil and the Dollar will now start to add to higher pressure in the "top line" CPI numbers.

This is adding to overall inflation risk. While the Fed is concerned about jobs, inflation is picking up.

Jobs peaking

Jobless claims picked up week to week and were higher by 13k over last week. We don't really care about it versus expectations because the trends are ultimately, what matter to us.

Jobless claims are still at historically strong levels... but...

JOBLESS CLAIMS DON'T TELL US MUCH ANYMORE

Why?

Because despite incredible jobless claims levels, the overall jobs payroll numbers are down. Less people are being hired. Who cares that jobless claims are historically low, less people are filing claims.

The main is that payrolls are slowing which means the economy is slowing.

Here's payrolls.

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And so the economy is slowing.

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Jobless claims tell us more about inflation than they do about economic health. Why? Because if the labor market is tight, even if it is coming down, wages go up, which is inflationary. The amount of people getting that wage benefit are fewer.

Conclusion

We've been writing that we see stagflation picking up (Sunday). Today's reports are confirmation. CPI was a little more benign than we feared but the trend for stagflation is still in effect. Inflation and slowing growth is negative for the markets (NYSEARCA:SPY).

Good luck and please be in touch. All of your comments teach US a ton.

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