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CPI +8.3% YOY: Down, but Still Historically High

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Wednesday, May 11, 2022

New Consumer Price Index (CPI) numbers are out for the month of April, and pre-market indexes are not happy. Even though month-over-month CPI came way down, from +1.2% in March to +0.3% last month, what everyone looks at is the year-over-year headline, which remained frighteningly high at +8.3%, though down 30 basis points from the previous month.

Also instructional is the “core” read, which strips out the volatile — and high, of late — food and energy prices. For April, this doubled the +0.3% we saw in March, indicating that inflation has progressed from energy costs to the greater economy. The highest month-over-month core CPI we’ve seen this cycle came in April of last year, at +0.9%. This is around the time major economists called for the Fed to get busy raising interest rates, knowing as they did a month-over-month core read of nearly a full percentage point was not something the economy was going to be able to digest on its own very easily.

CPI core did come in below estimates to +6.2%, and beneath the upwardly revised +6.5% for March, which now represents the highest read since 1982. So while it’s a good thing for the overall economy to see core CPI coming down month over month, these 40-year levels are still making market participants blanch when they see them, which is helping foster the sell-off in today’s pre-market.

Ahead of this report’s release, pre-market indices were all higher: +280 points on the Dow, +43 on the S&P 500 and +164 points on the Nasdaq. In the several minutes since traders have been able to digest this information, now we see the Dow -105 points, the S&P -25 and the Nasdaq -140 points. This is particularly bad for the tech-heavy Nasdaq, which has been strangled by activity breaking down multiples on future growth: inflation is currently rendering that future growth moot.

It’s important to keep in mind that this is all a global economic problem, thus not something the U.S. can amend via different policies on its own. A lot of it is still related to supply-chain issues, which continue to hinder production especially as China still holds the reins on much of the manufacturing aspects of the global economy, and this is something the Fed had been betting would resolve themselves over time when they decided not to move to raise rates a year ago.

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