Update (0855ET): Bond and stock markets are not happy about the hawk-implying hotter than expected CPI print with Nasdaq tumbling into the red for Feb…
And 10Y yields rising very near 200%…
And the dollar is spiking…
And while rate-hike odds have surged (55% odds of a 50bps hike in March), we also note the forward curve is implying rate-cuts 1-2 years out from here…
In other words, The Fed tries aggressively to stomp out inflation, crashes it all, and has to flip-flop back to rate-cuts and QE very quickly.
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Expectations for this morning’s must-watch CPI were a continued non-transitory acceleration to +7.3% YoY (Core +5.9% YoY), but they underestimated as the headline printed a shocking +7.5% YoY – the highest since March 1982.
Source: Bloomberg
CPI has beaten Wall Street expectations 9 of the past 11 months. This is the 20th straight monthly rise in CPI, with both goods and services costs rising…
Source: Bloomberg
Below the headline print, core consumer prices rose 6.0% YoY (hotter than the 5.9% expected and highest since Aug 1982) as food, energy, and used car prices were the biggest drivers. The energy index rose 27.0% over the last year, and the food index increased 7.0%.
Source: Bloomberg
The food index increased 0.9 percent in January. The food at home index increased 1.0 percent over the month after rising 0.4 percent in December. Five of the six major grocery store food group indexes increased in January. The index for cereals and bakery products increased the most, rising 1.8 percent over the month. The index for other food at home increased 1.6 percent in January, while the index for dairy and related products rose 1.1 percent. The fruits and vegetables index rose 0.9 percent over the month, and the meats, poultry, fish, and eggs index increased 0.3 percent. The only grocery store group index not to increase in January was the index for nonalcoholic beverages, which was unchanged.
The energy index increased 0.9 percent in January. The electricity index rose sharply in January, increasing 4.2 percent. The gasoline index fell 0.8 percent in January after rising rapidly in the autumn of 2021. (Before seasonal adjustment, gasoline prices rose 0.1 percent in January.) The index for natural gas also declined in January, falling 0.5 percent after declining 0.3 percent in December.
Perhaps most problematic is Shelter/Rent inflation:
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Shelter inflation +4.36% Y/Y, highest since June 1991
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Rent inflation +3.76% Y/Y, highest since July 2019
We also note that CPI-PPI – a proxy for margin compression – remains at extreme levels (and just this morning Unilever showed)
Source: Bloomberg
Finally, while politicians may proclaim wages are rising as a victory, the fact is that for 10 straight months, the cost of the shit you buy is outpacing the increases in incomes…
Source: Bloomberg
This print pushed the market up from 30% to 55% odds of a 50bps rate-hike in March…
Source: Bloomberg
Now will The Fed start jawboning a higher risk of 50bps so as not to tally shock stocks?
