The Markets are pleased with a CPI report that isn’t that great. Here are the details.
The BLS reports the CPI Rose 0.4 Percent in December.
The Econoday Consensus was 0.3 percent so the headline number was worse than expected.
However, excluding food and energy, the CPI was up 0.2 percent, 0.1 percentage point better than expected. Shelter was up 0.3 percent, not a great number for those seeking rent relief.
Nonetheless, the bond market and stock markets are happy for now although I fail to see how anything fundamental has changed.
CPI Month-Over-Month Details
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis.
- The index for shelter rose 0.3 percent. Rent of primary residence rose 0.3 percent and owners’ equivalent rent was up 0.3 percent.
- The food at home index increased 0.3 percent and the food away from home index rose 0.3 percent over the month.
- The index for all items less food and energy rose 0.2 percent.
- The energy index rose 2.6 percent accounting for over forty percent of the monthly all items increase.
- Medical care commodities were flat at 0.0 percent and medical care services rose 0.2 percent.
CPI Year-Over-Year Percent Change
Year-Over-Year Details
- CPI: 2.9 percent. That only 0.1 percentage point better than June of 2023.
- CPI Excluding Food and Energy: 3.2 percent
- Rent: 4.3 percent
- Shelter: 4.6 percent
- Food and Beverages: 2.4 percent
- Medical Care Services: 3.4 Percent
That’s roughly how the average economist views things. The next chart is how the average person views things.
CPI Index Levels
Starting September of 2021, inflation took off.
Percent Change Since September 2021
- CPI: 15.3 Percent
- Food and Beverage: 18.2 Percent
- All Items Excluding Food and Beverage: 15.0 percent
- Rent of Primary Residence: +21.9 percent
Rent is the largest expense item for anyone who does rent.
Final Thoughts
The best aspect of the report was medical care because that has a strong influence on the PCE price index, the favorite inflation measure of the Fed. Otherwise, this was not a particularly good report.
Nonetheless, the yield on the 10-year note dropped 12 basis points (0.12 percentage points) to 4.66 percent. And the yield on the 30-year long bond dropped 11 basis points to 4.88 percent. But mortgage rates were unchanged at 7.25 percent on a 30-year fixed rate mortgage.
I saw the reaction of the stock and bond markets before I saw the report. My initial thought was shelter had a big improvement. Wrong, it didn’t. And in general, the Fed will be struggling with inflation until shelter improves.
Let’s see how long this rally in stocks and bond lasts. For now, today smacks of technical action or short-covering.
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Final demand services is about 67 percent of the index. This is why services at 0.0 percent and goods at 0.6 percent resulted in a change of 0.2 percent.
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Since the Fed’s first rate cut on September 17, yields on the long end have soared. So have mortgage rates.
The bond market is back to were it was when I wrote that post.
Bonds had been hammered so bad that any bit of good news could cause the reaction we saw today.
But Trump wants to add additional items to the TCJA renewal and expand military spending too.
Looking ahead, deficits are poised to soar under Trump.
Addendum
In a list above I inadvertently posted percent increases from September 2022 instead of 2021 as the subtitle stated.
Much larger numbers now posted.
My property insurance and auto insurance are up over 30% since 2021.
My property taxes, which landlords also factor into their rental pricing, is up over 25%.
My SS increased by a pittance this year.
Thankfully, I do not need it to pay for my living expenses.
The “Official Inflation” that the Fed uses is woefully understated.
In other words, a JOKE.
The majority of working and retired Americans have been reduced to “low-middle class to poor”.
I’m old enough to remember the life we had in the ’60’s and ’70’s.
Even during the tough times of the stagflation of the 1970’s and the recession of the early 1980’s, most working class Americans were able to own a modest home, a decent car, take a yearly vacation and had little to no credit card debt.
Starting in earnest during the ’80’s, outsourcing most factory jobs and the massive inflow (both legal and illegal) of 3rd world workers to do almost every other job that required physical labor and sweat has decimated our working class.
Even if this administration were to deport a modest number of the illegal alien construction field workers, Americans could not immediately fill those jobs. Those skills and the ability to work a physically demanding job were lost for today’s young working class during the last 30 years.
Being in the construction business, I watched it evolve.
And today, American youth would (rightfully) require a higher rate of pay to do those jobs. Because they are physical and somewhat dangerous.
And the current cost of living demands it.
So, the political and corporate class in this country have built a massive problem that will not easily or quickly be solved.
“disinflation” -> deflation
and the Fed will cut anyway simply because the Fed has other priorities than inflation and inflation expectations. Further I am not at all certain that the Fed hasn’t moved the target rate of inflation to a more palatable level of around 4% but none of that matters. The Fed needs to cut rates to help finance the banks as the cheap JPY USD funding trade unwinds. This is happening globally and funnily is never mentioned. Canada and Italy are not really participating primarily because their FI markets are not as deep as the others. Japan needs to raise rates to make certain the Yen doesn’t move to a new trading range over 175 which puts a serious limit as to how much and how fast the Fed can really cut but having said that it goes a long way to explain the recent yield curve twist and Fed response.
The real story is the CPI-W 1984 (the one Soc. Sec. uses) has been stagnant the last 8 months, increasing only 0.4% (0.5% on an annual basis).
Here are the last 8 readings: 307.811, 308.163, 308.054, 308.501, 308.640, 309.046, 309.358, 308.998, 309.067.
Do these figures reflect reality? No. But these are the figures that go into the history books despite the MSM telling you today that inflation is running at 4.8%.
TLDR: If you think the SS COLA was stingy last year, wait until next year.
Not sure of your point (or angle) here.
YOY CPI-U inflation was 2.9% as Mish reported, not 4.8%. And last 8 months was slow growth compared here, too, just as you reported for CPI-W.
But YOY CPI-W inflation was 2.8% so basically the same.
Comparing apples (CPI-W for last 8 months) to oranges (CPI-U for YOY) is not super helpful. But comparing it to six-month-old banana (your made-up “MSM … inflation… at 4.8%”) is useless
I’m referring to the 0.4% month over month headline figure being reported by the MSM, which is 4.8% annualized.
In fact, the month over month increase of the CPI-W (309.067/308.998) is 0.268% annualized which is statistically insignificant.
The BLS reports a set of figures to the media (‘seasonally adjusted’) which show increasing inflation when the actual figures going into the history books show little to no inflation.
You’re committing statistical malfeasance here, but you probably can’t be convinced.
Things are normally compared YOY (or annualized) because companies and people can easily know how their revenues or wages have actually increased within that same last year compared to these increased costs.
And as the BLS has reported (and I showed above), BOTH CPI-U and CPI-W actually increased by about 2.9% YOY, so your statement of little to no inflation is historically inaccurate (for the past year).
And then you are taking a one-month change and inaccurately assuming that particular rate will therefore be the exact same for the next 11 months (when you don’t know that) and projecting a 4.8% future YOY change. The market is betting big against such a large projection.
Yes, the MOM change was small, but the YOY last month was also 2.7% YOY, not near 0.3%
No doubt the PPT had their orders very early this morning. Around the world no less. Buying debt like there is no tomorrow. Which there may not be, when the rug pull cometh.
Most folks here never trust these numbers anyway. So what difference does it make what the numbers are?
I don’t care much what the numbers are. What matters to me is how the markets react to them. I’m selling into strength today. Keep buying the dips and selling the rips.
Or just do absolutely nothing and get rich anyway. Have you seen a non-log chart of S&P returns over the last 100 years? It’s better than porn!
Yep. Assuming you are satisfied with 10% per year on average. I prefer more. To each their own.
I only put up with 50% profits per year on average, but that’s just me.
Nothing new. Inflation operating at 3 percent doubles prices in 24 years. Inflation is the most destructive force capitalism encounters.
The market isn’t reacting to the news, it’s reacting to the 1st seasonal inflection point.
These are the 6 seasonal inflection points (they may vary a little from year to year):
Pivot ↓ #1 3rd week in Jan.
Pivot ↑ #2 mid Mar.
Pivot ↓ #3 May 5,
Pivot ↑ #4 mid Jun.
Pivot ↓ #5 July 21,
Pivot ↑ #6 2-3 week in Oct.
Latest estimate: 2.7 percent — January 09, 2025 As long as R-gDp holds up, so will stocks.
Most likely to be mentally ill. Liberals. Duh
https://x.com/eyeslasho/status/1879585703262298420
Some blue cities are going to charge stiff rents for each square yard of sidewalk a homeless takes up.
The outgoing regime will punish us with soaring inflation for throwing them out.
Mike, I’m glad you did this post, was talking about the CPI on my talk show…the .4% price hike end of the year is 4.8% price inflation if this holds for a yearly rate and the trend according to your graph is UP not down or flat. Everything that is being talked about in the dot gov world from tarrifs to making ours and Israel’s military great again speaks to stagflation, right? Or is this a re-priming the pump moment? It’s looking like Joe has left DJT a flaming bag of dog poo on the WH doorstep.
Different policies inbound as fighting inflation will not be only based upon monetary policy.
It will be volatile as different approaches come into effect.
Markets are starting to get positioned for new administration.
Loosening up energy and natural resources will take an axe to industry costs that are
production related.
Instead of squeezing labor and creating scarcity of supply materials this current regime gets reversed under Trump.
People being allowed to make a living wage is going to bolster growth.
Agree, the report was bad but the market cheered anyway. It won’t matter, inflation on deck as soon as Trump tariffs his way to trade wars. Only 5 more days for the trip to the promised land to begin….buckle your seat belts.
With a $37T Fed debt and $2T deficits, it’s hard to imagine anything other than rampant inflation. Quibbling about “ex food and energy” seems beside the point. Without getting a lot closer to a balanced budget (extremely unlikely) this sucker’s going parabolic.
Markets are running on short-term trades and lots of hype.
As bad as rent is, in many cases it’s cheaper per month (by a lot) than buying at current interest rates.
I will own everything, and love it!
I thought that was Larry Fink’s job.
I’ll own Larry Fink too.
Only 30 percent above the target! Hooray
Yes, that is not perfect. But the current unemployment rate of 4.1% is about 30% lower than the long-term 75-year average of 5.7%.
So don’t forget about the other ‘happy’ side of that coin.
They know I will have my sock puppet replace Powell with someone who will get interest rates back down so the wealthy can confiscate everything else we don’t already own. The beautiful part is we get a tax cut too.
Proles get to pay tariffs.
You only do what I let you do.