CP-High - If a broken clock is right twice a day, I guess economists can be right once in a while too. Experts had predicted price increases of 7.0% for the full-year ended in December and that is exactly what they got. Prices rose on average by 7.0% YoY, a record high going back to 1982, and 0.5% on a monthly basis.
Obviously, this comes with a few caveats. First of all, the methodology used in calculating this metric is widely regarded as hot trash. While it attempts to measure the average, exactly 0 people are truly "average", so it's measuring cost increases for a basket that no one bought. Moreover, 1/3 of the CPI is derived from a survey that seeks to measure "owner's equivalent rent", or how much homeowners would charge renters that lived in their house. While being survey based is bad alone, if you combine the OER with new and used car prices, that accounts for about 40% of the total CPI. So, if you didn't buy a car or move during the last year, 40% of the metric is automatically useless to you.
That said, this reading is still cause for concern. Everyone saw it coming, but this is exactly the kind of persistently high (and increasing) inflation JPow hinted at that could cause the Fed to tighten faster or more intensely.
One of the more striking aspects of the report was in seeing energy prices actually fall compared to the month prior. Still, energy costs are up almost 30% over the year, so don't celebrate too much yet. Food prices increased 0.5% over the month, bringing the annual rise to 6.3%. Remove these two inputs, food and energy, and you have what's called the "Core CPI", which rose 5.5% over the year.
There's a saying in modeling or any process where you take inputs and use them to derive one specific output: garbage in, garbage out. While garbage costs aren't actually a factor in the CPI, the indicator is exactly that. Take it with a grain of salt.
China - Let's check in our friends on the other side of the world. China has a lot on its plate right now and even more coming in a few weeks as the winter Olympics kick off in Beijing on February 4th, so let's check in on how things are going.
Well, it's not ideal. A bit of a COVID flareup is throwing officials for a loop. China has a notorious zero-tolerance policy for COVID cases and is certainly not stranger to punitive and draconian responses to any issues it faces. Sure this is good for the health of the world's most populous nation, but it's not great for global supply chains. Zero-tolerance means shutting down factories, restricting workers from going to their jobs, and restricting movement overall. With China holding the title of "The World's Factory", this doesn't look good for anyone.
But, there is more than COVID going down over there. For starters, the Evergrande disaster has only gotten worse. The company officially defaulted on coupon payments last month and is still working closely with CCP officials to pay off the $300bn. One move the firm just began making was the abandonment of it's corporate HQ, not a strong sign.
And not to be outshone by the U.S., China just reported their most recent CPI numbers as well. Prices rose 1.5% from the year ago period, beating the hell out of the U.S. figures, while factory prices as measured by the PPI gained 10.5%. Both figures represent slowdowns in price increases from the month before.
All in all, things look ready to go for Feb. 4th. China will do what they gotta do at the end of the day, and with Xi's term up this year, he needs to save face to hold office.