CPI soars, REAL wages thru floor
highest CPI since '82, "...followed by Tsy bid..." (and more recaps)
With the latest SKY HIGH CPI (proxy for prices at the pump and soon to be declining even further approval ratings for Biden), I thought ZH puts it best,
US Consumer Prices Soar At Fastest In 39 Years, Real Wages Tumble For 9th Straight Month
… Finally, and perhaps most importantly for Main Street, real average hourly earnings fell (down 2.4% YoY) for the 9th straight month...
Source: Bloomberg
So the next time a politician tries to tell you to be grateful that your wages are going up or you can move to a new higher paying job, just remind him that the surge in the cost of living is outpacing wage gains, thanks to The Fed's money-largesse and Congress' lockdown policies and helicopter money have crushed the quality of life for millions.
It was this last visual of REAL wages which aren’t quite keeping up with prices at the pump OR the narrative about WAGE PUSH ‘FLATION which is cause for pause. I’ll now return you to normal sellside stratEgery who are sure to be out with victory laps and recaps shortly.
The very FIRST in the inbox is a short recap by best in biz,
CPI Highest since 1982, Followed by TSY bid...
Consumer prices during December increased +0.5% MoM vs. +0.8% Nov and +0.4% consensus. YoY pace matched expectations at +7.0% vs. 6.8% prior. Core inflation also beat forecasts at +0.6% MoM (unrounded +0.550%) vs. +0.5% consensus and +0.5% Nov. YoY core-CPI jumped to 5.5% vs. 4.9% prior and 5.4% anticipated. Energy costs were -0.4% vs. +3.5% prior. The details also showed used autos +3.5% Dec after +2.5% Nov and +2.5% Oct -- no moderation yet on the auto trend. Apparel improved +1.7% vs. +1.3% prior and OER increased +0.4% for the fourth consecutive month. Given the upside in headline inflation, it wasn't surprising to see real AHE down -2.3% YoY, accelerating the decline vs. -1.9% Nov -- this brings further into question the path of real spending power in the coming quarters. Overall, an uneventful report from a trading perspective as it simply confirmed the March liftoff scenario.
Treasuries were effectively unchanged on the day immediately ahead of this morning's inflation data. This backdrop argues for a relatively clean read of investors' reaction function to the update on consumer price trends. The post-release move in US rates has been a modest bid. This is somewhat counter-intuitive to be sure, although there is a strong argument to be made that investors were positioned for a more dramatic response and when the market shrugged off the numbers initially, shorts were covered as the 'priced in' narrative begins to resonate. From here, this afternoon's 10-year reopening auction becomes the focal point with some degree of concession surely warranted; although we expect the outright yield levels will bring in plenty of sponsorship….
Here is updated HOURLY 30yy over past couple days to help frame said BID in wake of data …
Ask yourself, then, which markets are skating to wherever the puck is gonna be?
920a UPDATES
MS on PCE post CPI factors,
… And in terms of implications for PCE inflation, we preliminarily forecast that core PCE inflation will rise 0.46% in December, putting the year-over-year rate on track to end 2021 at 4.8%. We preliminarily see headline PCE inflation up 0.42% in December, putting the year-over-year rate at 5.8%. We will finalize our forecast for December PCE inflation with the release of the PPI data tomorrow, where health care and financial services details are key watch points, as well as some potential for divergences between airfare measures in the two reports which could have an impact on PCE tracking for the month
Breans BOTTOM LINE:
Another CPI upside surprise that shows both broad-based inflation and continued upward pressure from new and used car prices, airfares, and accommodation away from home. Inflation momentum continues to build with the three-month headline inflation rate at 9.1% versus a 7.0% 12-month rate, and a core rate of 6.9% over three months versus 5.5% year-over-year. Moreover, it is not just about goods and energy prices with services excluding energy up 4.6% at an annual rate since September and 3.7% since December 2020. The Fed has abandoned the transitory language to describe inflation but still looks for the largest deceleration in inflation in 2022 that has been seen since 1975. However, the Fed’s recent track record in forecasting inflation has been awful with the December 2020 median SEP PCE price inflation forecast for 2021 a mere 1.8% (on both headline and core).
10a and the hits keep on coming … this one took bit more time to come up with catch SUBJ LINE and Swonky bottom line:
As Inflation Sizzles, Fed Panics … Inflation has soared as the recovery gained steam. Overall economic growth will easily come in at the fastest pace since 1984 for 2021; inflation is also back to 1980s levels with the Fed now poised to combat it. This is the first time the Fed has chased instead of trying to preempt a nonexistent inflation since the 1980s. Brace yourselves.
1020a UPDATE … As the peak may be closer than it appears in the mirror, Jefferies says peak approaching AND visual including ZILLOW RENT INDEX caught my attention,
December CPI: Still Hot, But Close To Peaking.
■ The CPI came in above consensus, but only by a touch. Core CPI rose by 0.55% m/m vs. the consensus forecast of 0.5%.
■ Goods inflation remains hot; in fact core goods prices accelerated to 1.2% m/ m, the largest increase since June, on the back of outsized increases in used cars (+3.5%), new cars (+1.0%), apparel (+1.7%) and furniture (+0.7%).
■ However, core services rose by just 0.3%, the slowest since September. Housing inflation did not accelerate as we expected, and price increases slowed in travel categories.
■ Nothing in this report changes our outlook for inflation. We expect sequential increases to begin to slow in January as seasonal demand strength gives way to seasonal weakness, allowing retailers to build inventory. Housing inflation should also begin to slow around February/March.
■ The 7% y/y inflation is likely to be repeated in January, but we expect it to slow sharply thereafter. Core CPI is likely to peak in February around 5.9%. We expect it to end the year at 3%.… The CPI housing components have been undershooting market rents, which have risen much more sharply, and it's not entirely clear why. That said, given that CPI rents/OER have not even begun to catch up, at this point we probably have to assume that they won't. And, given the fact that mkt rent inflation peaked in Aug/Sep (per chart below), OER could actually begin to roll over by Feb/March given the typical lags.
More from those with a crystal ball as needed…