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CPI Jumps Most Since February 1982, Up at Least 0.5% 9 Out of Eleven Months

The CPI rose another 0.6% in January, at a year-over-year clip of 7.5%.
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Consumer Price Index (CPI) data from BLS, chart by Mish

Consumer Price Index (CPI) data from BLS, chart by Mish

The BLS reports another Consumer Price Index jump to kick off 2022.

Year-Over-Year Key Details 

  • The all items index rose 7.5 percent for the 12 months ending January, the largest 12-month increase since the period ending February 1982. 
  • The all items excluding food and energy index rose 6.0 percent, the largest 12-month change since the period ending August 1982.

Month-Over-Month Changes

Consumer Price Index (CPI) data from BLS, chart by Mish

Consumer Price Index (CPI) data from BLS, chart by Mish

Month-Over-Month Key Details 

  • The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in January on a seasonally adjusted basis.
  • The index for all items less food and energy also rose 0.6 percent in January, the same increase as in December. 
  • This was the 9th time in the last 11 months the CPI increased at least 0.5 percent.
  • Increases in the indexes for food, electricity, and shelter were the largest contributors to the seasonally adjusted all items increase in January.
  • Along with the index for shelter, the indexes for household furnishings and operations, used cars and trucks, medical care, and apparel were among many indexes that increased over the month. 
  • The food index rose 0.9 percent in January following a 0.5-percent increase in December.
  • The energy index also increased 0.9 percent over the month, with an increase in the electricity index being partially offset by declines in the gasoline index and the natural gas index.

Bond Market Reaction

US Treasury bonds reacted negatively to the data which was a bit worse than expected. 

The Bloomberg Econoday consensus was a 0.5% rise month-over-month and 7.3% year-over-year.

Rates as of 9:20 AM Central 

  • 3-Month:Up 4 basis points (.04 percentage points) to 0.32%
  • 2-Year: Up 13 basis point to  1.48%
  • 5-Year: Up 10 basis points to 1.90%
  • 10-Year: Up 6 basis points  to 1.99%
  • 30-Year: Up 5 basis points to 2.29%

Not Yet Begun to Hike

Pay special attention to the 2-year and 5-year rates. They are rising much faster than rates at the long end.

This is a bearish flattening of the yield curve. It is somewhat typical in rate hike cycles, but in this case, the Fed has not yet begun to hike. 

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Heck, the Fed is still ridiculously continuing QE smack in the face of this CPI inflation. 

The QE ends in March and that is when the Fed has signaled it will finally start hiking.

Despite Rising Bond Yields the Yield Curve is Still Flattening

On February 8, 2022 I noted Despite Rising Bond Yields the Yield Curve is Still Flattening

The flattening of the yield curve continues. Here we are on the verge of inversions (the 5-ten spread is only 9 basis points yet the Fed is still twiddling its thumbs on hiking.

By March we may very well see major inversions (shorter-term treasury bonds yielding more longer dated bonds). 

Inversions are a major recession warning. 

Strongly Leaning Towards Recession

For those who may have missed my January 29, 2022 post, I repeat my stance: With Nearly Everyone Looking the Other Way, It's Time to Discuss Recession

The faster the Fed hikes and removes QE liquidity, the faster we will be in recession. Three hikes in the next three meetings might easily be sufficient.

This post originally appeared at MishTalk.Com

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