Commentary Directory
- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
CPI: From Transitory to Elevated to Persistent
Jacob Hess
April 12, 2022
- Inflation
The March CPI inflation report did not disappoint with a strong 1.2% MoM increase to an annual rise of 8.5% YoY. Most subindexes did not see any significant growth acceleration and even the used vehicle component saw a -3.8% MoM softening. In fact, the sole culprit for the surge in headline inflation was the Energy index (as expected) which surged 11.0% MoM.
Energy goods prices grew 18.1% MoM, and energy services prices grew 1.8% MoM. Food also experienced a solid increase of 1.0% MoM, but it was in line with what we saw in February. Both were relatively expected. The surprise of the report was the monthly increase in core inflation (ex food and energy) of just 0.3% MoM, the lowest since September 2021. This might have been driven by a -0.4% MoM decrease in the prices of goods (ex food and energy) which likely was driven by the drop in used vehicle prices mentioned above. Services prices were a bit hotter with a 0.6% MoM increase, but the annual gain sits at just 4.7% MoM.
As we close the first quarter of 2022, the inflation narrative has shifted again. The first stage of post-pandemic inflation narrative was the "transitory" narrative in the beginning of 2021 where the relaxation of restrictions was expected to bring on pent-up demand that would translate into demand driven inflation. Goods prices were expected to overshoot a bit, and services prices, which crashed during the pandemic, were expected to snap back into place. Supply chain disruptions brought about the next stage, that inflation would be more "elevated" than previously expected. Prices in both Q3 and Q4 2021 continued to rise on the pent-up demand, but supply chain disruptions stuck around and accelerated increases in goods prices.
The third stage has the Federal Reserve alarmed and ready to move aggressively in the remaining FOMC meetings in 2022. The narrative, as a result of geopolitical tensions and rising inflation expectations, has turned to "persistent." The monthly gains in the CPI report have been elevated for some time, especially in core CPI. The 5-month moving average of monthly changes of core CPI exceeded 0.5% in Q3 2021 and again in Q1 2022. The last time the average reached this level was in 1982.
"Persistent" inflation is forcing the Fed to move swiftly and strongly in rising the Fed funds rate with many expecting a 50 bps hike in May. The bond market has also responded with a rise in short term interest rates that has caused the yield curve to flirt with inversion. This new narrative has demanded a more serious position on price stability from policymakers which has negative implications for US growth.
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