A big beautiful beat for headline and core. Can the Fed stop hallucinating inflation now? If tariffs were making inflation, then why did the goods sector show outright deflation for the month? Headline and core, ex-OER, are both below 2% year-on-year now, and the Fed's target for them is 2.5%. Sharp deceleration in May for all categories except food. More than all the month's reported (and low) inflation was due to just 5 items out of almost 200. Going into next week's FOMC, the Fed can and should be more relaxed about inflation. But the reality is that all year the Fed has been targeting the stock market, tick by tick. To the extent that this good news keeps buoying stocks (as it is, as of this writing early Wednesday morning), the Fed will become more and more convinced -- and rightly so -- that rates are pretty much at neutral already.
US CPI/PPI
US CPI/PPI
Tuesday, May 13, 2025
As we keep saying when it comes to tariffs, "wait and see." Goods are tariff-sensitive, and yet they were in outright deflation in April despite the onset of tariffs. Services are less tariff-sensitive, yet they came in slightly above the Fed's target. All told, headline CPI came almost exactly on-target. Whew! Update: PPI final demand is in outright deflation for the second month in a row -- and this is just where tariffs were supposed to be showing up first and foremost!
US CPI/PPI
Thursday, April 10, 2025
Markets don't seem to care much that we just had a glorious beat in CPI, both headline and core. The narrative is that it's depressed consumer demand because of tariffs. If it had been a miss, the narrative would have been it was pre-emptive buying because of tariffs. You've got to hand it to Trump in one respect, at least -- he sure knows how to rivet the public's mind onto an issue! But the underlying reality here is that this helps remove a barrier to the deployment of a Powell put, if necessary. All to the good.
US CPI/PPI
Wednesday, March 12, 2025
February CPI, headline and core, came in within basis points of the Fed's target. This matched our "Truflation" prediction perfectly, as well as other "nowcasting" estimates. The consensus was slightly more hawkish. Our monetarist model, which was bang-on perfect last month, was even more hawkish. Delighted to be wrong. This gives the Fed the scope to consider accelerating removal of policy restriction if more recession evidence accumulates, without a strong inflation constraint. By the way, eggs were the fifth hottest irreducible category, but contributing only .019% to the month's inflation.
US CPI/PPI
Wednesday, February 12, 2025
Ugly and complicated CPI print this morning -- we had been expecting a beat, and we got a big miss. We can't blame the annual changes in basket weights -- they were trivial. We've been gradually giving up on our monetarist model that predicts CPI based on changes in the money supply, judging that its signal-to-noise ratio has been degrading as inflation has normalized. But its prediction for January CPI was literally perfect, and looking ahead, it's predicting that CPI will keep gently rising over the coming year. Markets are now saying there isn't certainty of a Fed rate cut until December.
US CPI/PPI
Wednesday, January 15, 2025
Big beat in core, which is what matters. For headline, gasoline was the culprit, contributing more than a third of headline inflation for December. On a year-over-year basis, core less OER fell for the first time in six months. Powell's version, "super core", continues to fall (too bad he never mentions it anymore). A very good report.
US CPI/PPI
Wednesday, December 11, 2024
OER continues to decelerate -- with exactly the long lag that we and the Fed have expected. The problem is that the super-core aggregates that exclude shelter aren't getting any benefit from that. It's a small effect, and it won't deter the Fed from cutting next week, but our prediction that CPI would stabilize here and start gently accelerating, as growth in the money supply is restored, is coming ominously true.
US CPI/PPI
Wednesday, November 13, 2024
A very optimistic market reaction to a largely at-consensus CPI print. It was a slight miss, actually. The whisper number must have been awful. Feels to us like we have "stick the landing" inflation at this point, approximately at the Fed's target. Disinflation is likely over now. The path of the funds rate is now just a matter of what the FOMC thinks "neutral" is. We suspect that's higher than they are saying out loud.
US CPI/PPI
Thursday, October 10, 2024
It was the miss we expected. But headline CPI still printed below the Fed's target for the month. Without OER, inflation year-on-year is far below target. Our monetarist model continues to be eerily correct, showing Core CPI ex-OER curling up from the bottom several months ago, even as M2 growth is far slower than historical precedent. This should surely be good enough to assure another 25 bp rate cut at the November FOMC, even though markets have begun to doubt it.
US CPI/PPI
Wednesday, September 11, 2024
Relax everybody. The miss in core CPI was just one thing: shelter. In fact, 19 bp of the whole 20 bp of headline CPI in August was OER, rent and lodging. It's stupid for the Fed to let that one part of one month of inflation make the call -- but when it's a close call, little things do make a difference: this locks in only a 25 bp cut for the September FOMC. And that's just fine.