The US CPI report, released on Tuesday, displayed the headline rate falling by 0.1% YoY to 3.1% and YoY core inflation staying constant at 4% - both in line with economist expectations. MoM CPI saw a modest increase of 0.1%, higher than expectations of a 0% change, and MoM Core CPI increased 0.3%, in line with expectations.
According to the report, the main drivers of this month's inflation numbers were higher rental and used vehicle prices. Increasing rental prices can largely be attributed to landlords passing higher mortgage payments over to renters. Higher used car prices have been somewhat correlated with the United Auto Workers strike and subsequent pay deal which have caused the supply of cars to drop as well as the price per unit to increase.
The market seemed to welcome the latest figures with the S&P 500 and NASDAQ 100 rallying 0.39% and 0.98% on the day respectively. Going forth, core inflation will be at the focal point of future CPI releases due to it being the harbinger of underlying price pressures, particularly due to it stripping out volatile items such as energy and food prices, making it less susceptible to geopolitics and supply chain disruptions. One particular area of concern is rental pressure, which is unlikely to subside until interest rates come down and therefore, probably going to continue haunting CPI releases to come (until rates ease). This creates somewhat of an ironic situation as putting interest rates up has, to some degree, created inflation in itself. However, I hope policymakers at the FED are aware of this spiralling conundrum and therefore, likely to ease interest rates to make inflation prints more compelling.
In conclusion, I tend to agree with the growing consensus in the markets that interest rates are likely to come down earlier than expected, which, as of Wednesday, has now been confirmed by FED's infamous dot plot. This is great news for renters, homeowners, equities, and even gold - not so much for fixed-income yeilds...
Comments