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Core Consumer Price Inflation Prints Hotter Than Expected

Core Consumer Price Inflation Prints Hotter Than Expected

Having slowed and disappointed for the last two months, all eyes are on US consumer price index growth (which was expected to slow once again in June) this morning as the next Fed rate-cut narrative confirmation.

The problem for rate-cut-hopers is that the picture is mixed at best. Headline CPI slowed to +1.6% YoY (exactly as expected) – below The Fed’s mandated 2.0% ‘stability’ level; but core CPI rose 2.1% YoY (hotter than the expected 2.0%) and above The Fed’s 2 handle…

Under the hood, weakness in energy prices dominated the downside while used car prices rose more than expected

Indosuez Sees $60 Average WTI Crude Price for 2019

The tariff effect is beginning to hit perhaps – The index for household furnishings and operations rose 0.8 percent in June, its largest increase since February 1991, as the index for gardening and lawncare services rose 6.1 percent.

Both Goods and Services prices picked up in June (with Goods back into positive territory YoY) and Services rise 2.8% YoY…

The firmer inflation readings follow Fed Chairman Jerome Powell’s testimony to lawmakers Wednesday that there’s “a risk that weak inflation will be even more persistent than we currently anticipate.’’

Loonie Spikes After Canadian Core Inflation Soars To 10-Year Highs

Loonie Spikes After Canadian Core Inflation Soars To 10-Year Highs

Canadian inflation rose faster than expected in May across all eight major components, spiking the Loonie as it supports the BoC’s view that ‘the North’ is emerging from its growth slowdown (and Poloz argument that rates will need to go higher).

The headline consumer price index jumped 2.4% from a year earlier, compared with 2% in April and versus a median economist forecast of 2.1%, Statistics Canada said Wednesday from Ottawa. It was the highest annual rate since October, boosted by increases in food and durable goods prices.

Core inflation, closely watched by policy makers, surged, with the average of the three key measures rising to 2.07%, the highest since February 2012.

The largest upside contributor to CPI on an annual basis was shelter costs, which rose 2.7%. Food and transportation were also major drivers.

And the Trimmed Mean inflation print jumped 2.3% YoY – the highest since March 2009

Spiking the Loonie…

Presumably, BoC does not believe this spike is “transitory”.

Why Core Inflation is Rising & What it Means for Fed Rate Hikes

Why Core Inflation is Rising & What it Means for Fed Rate Hikes

Yellen was right to brush off “transitory” factors of “low” inflation.

Consumer prices, as measured by CPI for October, rose 2.0% year-over-year. A month ago, CPI increased 2.2%. The Fed’s inflation target is 2%, but it doesn’t use CPI, or even “Core CPI” – which excludes the volatile food and energy items. It uses “Core PCE,” which usually runs lower than CPI, and if there were an accepted measure that shows even less inflation, it would use that. But it does look at CPI, and there was nothing in today’s data to stop the Fed from raising its target rate in December.

The Core CPI rose 1.8%, up a tad from September’s 1.7% increase. Core CPI has been above 2% for all of 2016 and through March 2017. In the history of the data going back to the 1960s, Core CPI had never experienced “deflation.” But when Core CPI rates retreated in the spring through August, along with other inflation measures, a sort of panic broke out in the media:

But the retreat was repeatedly brushed off as “transitory” by Fed Chair Janet Yellen and other Fed governors, starting in June, when they vowed to continue raising rates “gradually” and proceed with the QE unwind. Yellen had specifically pointed at a few of those “transitory” factors. These factors are now turning around. Core prices have re-accelerated their increases.

One of the “transitory” factors Yellen had pointed out specifically was telephone services, which includes the monthly costs that consumers pay for their smartphones and landlines. Those costs had plunged as a price war among wireless carriers broke out in 2016. This summer, the CPI for wireless services plunged as much as 13% year-over-year. Consumers loved it, but it couldn’t last.

…click on the above link to read the rest of the article…

Why US Price Inflation Remains Relatively Subdued?

The yearly growth rate of the US consumer price index stood at 1.9% in August against 1.7% in July, while the growth rate of the price index less food and energy stood at 1.7% in August against a similar figure in July and 2.3% in August last year.

Given that the Fed’s target for the core CPI i.e. the CPI less food and energy is 2%, this has  prompted some experts and Fed policy makers to seek answers as to why price inflation remains subdued in the midst of a declining unemployment rate and prolonged economic expansion. The unemployment rate stood at 4.4% in August against 4.9% in August last year and below the so-called natural, or the equilibrium rate of unemployment of 4.5%.

If price inflation hovers too low, it raises the risk of price deflation, which is seen by most experts as bad news. Most experts are of the view that prolonged price inflation below the Fed’s target runs the risk damaging the credibility of the central bank.

We suggest that the main reason for the dilemma as to why the pace of inflation is relatively low in the midst of supposedly strong economic indicators is a misleading definition of what inflation all about.

Contrary to the accepted thinking, the subject matter of inflation is increases in money supply. Note that we do not say that increases in money supply cause inflation. What we are saying that increases in money supply is what inflation is all about.

Contrary to the accepted thinking, the subject matter of inflation is increases in money supply. Note that we do not say that increases in money supply cause inflation. What we are saying that increases in money supply is what inflation is all about.

…click on the above link to read the rest of the article…

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