Let's talk about inflation
EDITOR'S NOTE
I really wanted to write about something else today (McDonald's, actually).
But it's worth spending two minutes on the latest inflation numbers.
We got the June consumer price index this morning (PDF here). Overall, the CPI rose 1.6% from a year ago. Pretty soft headline number, in part because energy prices are still down from this time last year. Strip out energy and food, and the "core" CPI was actually up a robust 2.1% from a year ago--and its 0.3% gain from May to June was the largest monthly increase in 18 months.
That certainly got the market's attention. The 10-year yield backed up to 2.08% and the odds of a half-point rate cut fell to 15% from 25% yesterday, per Peter Boockvar.
Now, this is just one of many inflation gauges and it's not even the best one--that prestige goes to the price index for personal consumption expenditures (a wonky way of saying "consumer spending"). The PCE price index, which is the Fed's preferred inflation gauge, also shows headline inflation up 1.5% from a year ago. But its core reading is still much weaker, up just 1.6% as of May.
So when Fed chair Powell says, like he did yesterday, that "inflation has been running below the Federal Open Market Committee's (FOMC) symmetric 2 percent objective," that's basically true, today's core CPI number notwithstanding.
But is inflation going to stay that low?
Goldman doesn't seem to think so. They're out with a new report today that explains why inflation has been so weak. Two-thirds of the reason is actually because of cooler healthcare and pharma price hikes relative to last decade. The tariff hikes meanwhile have been largely offset by the strong dollar. (Softer hotel pricing lately is another interesting reason, which they attribute in part to Airbnb.)
All told, Goldman thinks core PCE "will reach 2%+" in the fourth quarter of this year, which, they note, "would like remove one major pillar" of the case for Fed rate cuts.
A cynic would say that means the Fed will hurry up and cut rates now, while the data still lets them. We're not hearing much different so far from Fed chair Powell today in his appearance before the Senate.
More at 1 p.m.! See you then,
Kelly
KEY STORIES
IN CASE YOU MISSED IT
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Post a Comment