Summary Of My Post-CPI Thoughts

Includes: IYR, PMR, RETL, RTH, XRT
by: Michael Ashton

Here’s a summary of my post-CPI tweets:

  • #CPI +0.7%/+0.2% ex food & energy. Y/Y core back up over 2% at 2.004%. And going higher.
  • Gasoline prices +9.1%, so there you go for everyone who thought Jan.'s number was low.
  • Economists had been looking for a "soft" 0.2% on core core, and got it at +0.17% rounding up to +0.2%.
  • y/y rise in Owner's Equivalent Rent rose to 2.14%, a new post-2008 high. That’s on the way to 3% or 4% over the next 1-2 years, at least.
  • Accelerating Major groups: whoa…EVERY major group accelerated y/y. All 8 of them. I’ve never seen that.
  • Food & Bev: 1.625% from 1.558%. Housing 1.929% from 1.805%. Apparel 2.426% from 2.115%. Transp 2.361% from 0.712%.
  • Recreation 0.890% vs 0.554%. Educ/Comm 1.740% from 1.622%. Other 1.803% from 1.574%. Only close one: Medical 3.107% from 3.095%
  • #CPI didn't surprise on the upside, but there is just nothing weak about this number. Anywhere.
  • Well, core goods I guess. +0.3% from +0.4%. But core services went to 2.6%, mainly on housing strength. If core goods ever recover…

The mainstream media and many economists will yawn at this number and miss the big picture. There is just nothing important here that is weak. In particular, every major group accelerated on a year-on-year basis. That's amazing. It's not unprecedented, I am sure, but I don’t remember seeing it happen before. Usually some are accelerating, some are decelerating, even when inflation overall is accelerating or decelerating.

In particular, housing continues to quietly accelerate, as we've been predicting. It is going significantly higher.

Core inflation is going to accelerate further, although the next several months have solid year-earlier comparisons of +0.22%, +0.22%, +0.20%, and +0.21%. But we think we'll see core inflation nevertheless accelerate over that time frame, and then there are six easy comparisons in a row with nothing above 0.17%. By year-end, we still think we will see core of 2.6% to 3.0%.