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CP-Ight
It was 8:29 am. My palms were sweaty, knees weak, and all I could think about was how badly I just wanted some of my mom’s spaghetti. The inflation perspiration was getting out of hand, and then, the report dropped.
January CPI came in at 0.5% for the month and 6.4% for the year. Yes, that was above economists’ expectations. Yes, that was higher on a monthly basis than December’s (revised) 0.1%. And yes, that is more than 3 times the Fed’s 2% target rate. An uptick in price hikes to start 2023 was almost def not priced in, so how was Mr. Market feeling?
Surprisingly to some, not too bad. Despite driving close to the heaviest trading volume the S&P 500 has seen in 2023, bulls and bears were nearly evenly matched.
Now, if I told you yesterday that CPI was gonna come in hotter than expected, the vast majority of us probably would’ve said markets would be looking like March 2020. So what happened? Glad you asked.
While the chart below shows the change in purchasing power as basic lines and bars, the real data is a whole lot more granular. Don’t ask me how they track it, but these “people” got line items including hyper-specific data like “shelf-stable fish and seafood” and even separate “instant coffee” from “roasted coffee.” It can’t be that deep…
But apparently, it is. These hyper-specific line items give us just the insight we need to see where that inflation bastard is still lurking. Last month, it was the usual suspects of food, energy, and shelter once again.
Food inflation surged 10.1% on the year, or 0.5% for the month, and proved one of the most significant contributors to the monthly uptick. Energy really wasn’t tryna help either, surging 2% for the month but “just” 8.7% annually.
The real scumbag of the report was once again housing and housing services inflation. Together, these metrics make up over 1/3rd of the entire index. If that’s not ridiculous enough, just know that the largest part of that 1/3rd is “owner’s equivalent rent,” where people who OWN their homes are made to act as if they rent it.
Housing posted 7.9% YoY growth and 0.7% for the January period. But sometimes, the Fed is smart. Recently, the idea of “super core” inflation (inflation ex-food, energy, AND shelter) gained just 0.2% monthly and 4.0% for the year.
See, JPow and the gang know CPI works on a lag, and they also apparently know that the housing services section is the laggiest of all the lags. As a result, super-core inflation is going to be the word of the first half of 2023 at least, as home costs aren’t expected to register a material slowdown in the data until this summer.
But then again, it’s always good to remember: nobody actually knows what’s going on in macro, and everyone mostly just hypes up their portfolio / previous take. Markets seemed to digest the super core inflation idea, likely as this aligns with JPow’s relentless focus on housing costs at the recent Washing “Economic Club” forum.
Then again, JPow is also the guy that told us in May of ‘22 that 75 bps rate hikes were “not something the committee was actively considering.” 42 days later, the first 75 bps hike since 1994 was instituted.
Take macro with a grain of salt.
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