Thursday, January 12th, 2023
The biggest economic report to come out this week — arguably for the full month, with a new Fed meeting commencing at the end of it — is out this morning: the Consumer Price Index (CPI) for December brings a headline number of -0.1% month over month, as analysts had expected, and swinging to a negative from an unrevised +0.1% the previous month. Core — stripping out volatile food and gas prices — reached +0.3% month over month, also in-line with expectations and a tick above the unrevised +0.2% the last time around.
At least the first of these figures continue to depict gradually declining inflation in the U.S. economy, as today’s headline delivers the first negative number since May 2020. The peak level on headline CPI was in June last year, which brought us +1.3% inflation month over month — the highest single-month climb since 2005. For the core read, +0.9% in April of ’22 remains the high water mark — the highest inflation we’d seen since 1981.
Year over year is where the primary focus remains, and here we see estimates matched exactly with expectations, as well: headline CPI year over year has descended to +6.5% from an unrevised +7.1% for November — a 60 bps drop month over month, which is considerable, and 260 bps lower than we found ourselves in June of last year, which brought us a harrowing +9.1%, which is also the highest level we’d seen since ’81.
Core CPI, year over year, also met estimates exactly: +5.7%, down 30 bps from the previous print. This is notable because until the past three months we’d been seeing core CPI ticking up even as headline numbers would continue to melt away. September ’22 was the high mark at +6.6%; we count six straight downward prints on headline year over year.
Overall, a gradual evaporation of inflation over time increases the likelihood that the economy will achieve a soft landing. However, this also means the Fed will likely stick to its dot plot established late last year: 5%+ on the Fed funds rate for as long as it takes until 2% inflation comes back into view. And while we applaud a +5.7% on core year-over-year CPI, it’s still close to 3x the desired inflation rate.
Directly following this CPI report, Philadelphia Fed President Patrick Harker has come out with a statement that has pushed negative pre-market indices into the green (something even this good CPI report couldn’t do). While Harker said he expects the Fed to raise interest rates “a few more” times before pausing — which might be seen as hawkish — he said 25 bps hikes would be appropriate. This is the first solid evidence we’ve seen that the Fed might be looking to slow its Fed funds rate hike by more than widely expected.
To wit, the Dow is trading +175 points in the pre-market at this hour, while the S&P 500 is +25 points and the Nasdaq +70. This is fairly significant, seeing as we saw a big day for the bulls on the indices yesterday in anticipation of the CPI report. We note the most recent trough in the market last month was a higher low than previous, and we appear to be achieving higher highs than the last upswing in November.
Also, Initial Jobless Claims last week were lower than expected: 205K, the closest we’ve been to 200K since mid-summer last year, and slightly below the upwardly revised 206K the previous week. These are, to put it simply, terrific labor market numbers for an economy supposedly teetering on the edge of recession. Continuing Claims fell even further — to 1.63 million from an upwardly revised 1.70 million the previous week. This is the lowest print since mid-November last year.
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CPI +6.5% YoY In-Line, Jobless Claims Sink to 205K
Thursday, January 12th, 2023
The biggest economic report to come out this week — arguably for the full month, with a new Fed meeting commencing at the end of it — is out this morning: the Consumer Price Index (CPI) for December brings a headline number of -0.1% month over month, as analysts had expected, and swinging to a negative from an unrevised +0.1% the previous month. Core — stripping out volatile food and gas prices — reached +0.3% month over month, also in-line with expectations and a tick above the unrevised +0.2% the last time around.
At least the first of these figures continue to depict gradually declining inflation in the U.S. economy, as today’s headline delivers the first negative number since May 2020. The peak level on headline CPI was in June last year, which brought us +1.3% inflation month over month — the highest single-month climb since 2005. For the core read, +0.9% in April of ’22 remains the high water mark — the highest inflation we’d seen since 1981.
Year over year is where the primary focus remains, and here we see estimates matched exactly with expectations, as well: headline CPI year over year has descended to +6.5% from an unrevised +7.1% for November — a 60 bps drop month over month, which is considerable, and 260 bps lower than we found ourselves in June of last year, which brought us a harrowing +9.1%, which is also the highest level we’d seen since ’81.
Core CPI, year over year, also met estimates exactly: +5.7%, down 30 bps from the previous print. This is notable because until the past three months we’d been seeing core CPI ticking up even as headline numbers would continue to melt away. September ’22 was the high mark at +6.6%; we count six straight downward prints on headline year over year.
Overall, a gradual evaporation of inflation over time increases the likelihood that the economy will achieve a soft landing. However, this also means the Fed will likely stick to its dot plot established late last year: 5%+ on the Fed funds rate for as long as it takes until 2% inflation comes back into view. And while we applaud a +5.7% on core year-over-year CPI, it’s still close to 3x the desired inflation rate.
Directly following this CPI report, Philadelphia Fed President Patrick Harker has come out with a statement that has pushed negative pre-market indices into the green (something even this good CPI report couldn’t do). While Harker said he expects the Fed to raise interest rates “a few more” times before pausing — which might be seen as hawkish — he said 25 bps hikes would be appropriate. This is the first solid evidence we’ve seen that the Fed might be looking to slow its Fed funds rate hike by more than widely expected.
To wit, the Dow is trading +175 points in the pre-market at this hour, while the S&P 500 is +25 points and the Nasdaq +70. This is fairly significant, seeing as we saw a big day for the bulls on the indices yesterday in anticipation of the CPI report. We note the most recent trough in the market last month was a higher low than previous, and we appear to be achieving higher highs than the last upswing in November.
Also, Initial Jobless Claims last week were lower than expected: 205K, the closest we’ve been to 200K since mid-summer last year, and slightly below the upwardly revised 206K the previous week. These are, to put it simply, terrific labor market numbers for an economy supposedly teetering on the edge of recession. Continuing Claims fell even further — to 1.63 million from an upwardly revised 1.70 million the previous week. This is the lowest print since mid-November last year.
Questions or comments about this article and/or its author? Click here>>