Thursday, March 10, 2022
For the last few months, we’ve been seeing year-over-year numbers on the Consumer Price Index (CPI) — one of the main indicators of economic inflation — that have taken the wind out of the sails of bullish investor sentiment: first +7.0% in December, then a higher-than-expected +7.5% in January, and this morning it swoops up to +7.9% year-over-year CPI inflation. Ugh.
As we said a month ago, we need to go back 40 years to find a higher monthly year-over-year headline number. For the “core” number — stripping out volatile food and energy prices (times like these make this metric’s value obvious to see, with how high oil prices have gone) — we find ourselves at +6.4%, 40 basis points higher than the January print, and the highest we’ve seen since August 1982.
The Fed is behind the curve, as has been admitted by Fed Chair Jay Powell, who let inflation ride hotter for longer than many analysts thought worthwhile. He did so partly because supply-chain constraints had spiked price points Powell considered “transitory,” and partly so that lower-level employment could be shored up at pay levels more commensurate with a living wage. What he risked was runaway inflation eating up the economy, and now here we are.
Food prices grew 1% in this latest CPI read, while gasoline prices went up +6.6%. The scary part here is that these are February numbers — prior to Russia’s invasion of Ukraine and subsequent further spike in oil commodities. Forecasts are for gas prices to go up another 20% from here… in other words: buckle up, it’s still going to be a bumpy ride going forward.
Next week brings us the Fed’s monetary policy meeting — it’s first in six weeks or so. A lot has happened since then. But as recently as last week, Powell asserted that the initial interest rate rise was only going to be 25 basis points, not the 50 many analysts had started baking into their projections. The thinking, then, was if Putin’s aggression versus Ukraine wasn’t enough for Powell to try to get ahead of the curve on inflation — and a 50-basis-point hike is scarcely “getting ahead of” it — could anything change his mind?
Well… what about near-8% inflation? Would a more aggressive Fed move next week risk inverting the yield curve? (Currently the 10-year bond yield is 1.957% and the 2-year is 1.719%; an inversion would be a signal that a recession is coming — not every time, but as often as anything is in predicting such things.) Is a yield-curve inversion inevitable anyway? These are a lot of questions to answer. And it remains to be seen if our current marketplace will accept any answers as good enough.
Also, Initial Jobless Claims this morning rose +11K to 227K last week from the slightly higher revised 216K the previous week. These are still figures we can compare to pre-pandemic levels, although those had been encroaching half-century lows mere months prior to the coronavirus shutdown. Our recent low was more in line with those low figures: 188K in December of last year.
Continuing Claims also rose slightly to 1.494 million, though these are off the post-Covid low from the previous week: 1.469 million. These numbers are consistent with the robust health we’ve seen of late in the overall U.S. labor market.
Right now, the whipsaws are back in action: the Dow is -400 points, the Nasdaq is -185 and the S&P 500 is -50 points. We’re already giving back most of the gains we saw yesterday, which themselves were filling in potholes from the sell-offs we saw earlier in the week. Time to hunker down; war is hell.
Questions or comments about this article and/or its author? Click here>>
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CPI +7.9% Year Over Year, New Jobless Claims Up
Thursday, March 10, 2022
For the last few months, we’ve been seeing year-over-year numbers on the Consumer Price Index (CPI) — one of the main indicators of economic inflation — that have taken the wind out of the sails of bullish investor sentiment: first +7.0% in December, then a higher-than-expected +7.5% in January, and this morning it swoops up to +7.9% year-over-year CPI inflation. Ugh.
As we said a month ago, we need to go back 40 years to find a higher monthly year-over-year headline number. For the “core” number — stripping out volatile food and energy prices (times like these make this metric’s value obvious to see, with how high oil prices have gone) — we find ourselves at +6.4%, 40 basis points higher than the January print, and the highest we’ve seen since August 1982.
The Fed is behind the curve, as has been admitted by Fed Chair Jay Powell, who let inflation ride hotter for longer than many analysts thought worthwhile. He did so partly because supply-chain constraints had spiked price points Powell considered “transitory,” and partly so that lower-level employment could be shored up at pay levels more commensurate with a living wage. What he risked was runaway inflation eating up the economy, and now here we are.
Food prices grew 1% in this latest CPI read, while gasoline prices went up +6.6%. The scary part here is that these are February numbers — prior to Russia’s invasion of Ukraine and subsequent further spike in oil commodities. Forecasts are for gas prices to go up another 20% from here… in other words: buckle up, it’s still going to be a bumpy ride going forward.
Next week brings us the Fed’s monetary policy meeting — it’s first in six weeks or so. A lot has happened since then. But as recently as last week, Powell asserted that the initial interest rate rise was only going to be 25 basis points, not the 50 many analysts had started baking into their projections. The thinking, then, was if Putin’s aggression versus Ukraine wasn’t enough for Powell to try to get ahead of the curve on inflation — and a 50-basis-point hike is scarcely “getting ahead of” it — could anything change his mind?
Well… what about near-8% inflation? Would a more aggressive Fed move next week risk inverting the yield curve? (Currently the 10-year bond yield is 1.957% and the 2-year is 1.719%; an inversion would be a signal that a recession is coming — not every time, but as often as anything is in predicting such things.) Is a yield-curve inversion inevitable anyway? These are a lot of questions to answer. And it remains to be seen if our current marketplace will accept any answers as good enough.
Also, Initial Jobless Claims this morning rose +11K to 227K last week from the slightly higher revised 216K the previous week. These are still figures we can compare to pre-pandemic levels, although those had been encroaching half-century lows mere months prior to the coronavirus shutdown. Our recent low was more in line with those low figures: 188K in December of last year.
Continuing Claims also rose slightly to 1.494 million, though these are off the post-Covid low from the previous week: 1.469 million. These numbers are consistent with the robust health we’ve seen of late in the overall U.S. labor market.
Right now, the whipsaws are back in action: the Dow is -400 points, the Nasdaq is -185 and the S&P 500 is -50 points. We’re already giving back most of the gains we saw yesterday, which themselves were filling in potholes from the sell-offs we saw earlier in the week. Time to hunker down; war is hell.
Questions or comments about this article and/or its author? Click here>>