US CPI/PPI - 2025-02-11

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.