Tuesday, May 17, 2016

"Consumer Prices Jump Most In Over 3 Years Amid Rising Gasoline, Rent Inflation"

In March both the Fed Chair and Vice-Chair commented on how headline inflation would play out, which we relayed in "Barron's Cover--'Bill Gross: Why Interest Rates Must Rise'":
...Combined with inflation rising just by virtue of commodities, especially oil and metals, not falling, a phenomena both Fed Chair Yellen and Vice-Chair Fischer mentioned in speeches last month, we are set up for a bit of minor stagflation. 
Here's today's addition to the puzzle from Barron's:...
And here's ZeroHedge with the headline story:

Headline CPI rose 0.4% MoM (above +0.3% exp) for the biggest jump since Feb 2013 but sadly at the same time, price-adjusted hourly wages slid 0.1% in April.
Following a small drop in March, from 8 year highs, Core (ex food and energy) Consumer Prices rose 2.1% YoY (as expected) abesent the effect of Gasoline's huge 8.1% MoM surge.
Of course this is probably transitory but we note that rent inflation remains at 3.7% YoY - its highest since 2008 and definitively not transitory.
And as the breakdown shows, energy and gasoline price soared in April - so are higher oil prices good or bad again?
The index for all items less food and energy increased 0.2 percent in April after increasing 0.1 percent in March. The shelter index rose 0.3 percent in April following a 0.2 percent rise the prior month. The indexes for rent and for owners' equivalent rent both increased 0.3 percent, while the index for lodging away from home declined for the second straight month, falling 0.4 percent. The medical care index rose 0.3 percent in April, with the index for prescription drugs rising 0.7 percent and the hospital services index advancing 0.3 percent, but the physicians' services index declining 0.1 percent. The motor vehicle insurance index rose 1.2 percent in April, and the index for airline fares advanced 1.1 percent after declining in March. The recreation index rose 0.3 percent in April, as did the index for education, and the indexes for alcoholic beverages, tobacco, and personal care all posted slight increases. 
Gas prices according to CPI data, are up over 20% in the last 2 months - the biggest spike since June 2009...

Possibly also of interest:

March 23
"LPL: ‘Modest Stagflation’ Would Benefit TIPS"
For the last couple months we've been going on about inflation ticking up and the relative value in TIPS vs. treasuries. Here's a decent proxy, the iShares TIPS ETF, which seems to be digesting recent gains:
TIP iShares TIPS Bond daily Stock Chart
$113.43 up 17 cents. Closing that gap from Fed day would probably be healthy for the chart structure but it matters less than it would for a straight bond, or equity for that matter.
March 28
"The Fed Is Going to Let Price Inflation Run Hot"
April 14
Consumer Inflation Comes In Lower Than Expected, TIPS Fall Like Cherry Blossoms In Gentle Spring Rain (TIP)