- 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?
- Long Term Employment Shifts Caused by the Pandemic
- Earnings Provide Positive Surprise Despite Pandemic
- Renewable Energy Under Fire in Texas
- Yellen Aims for Full Employment
- Minimum Wage Research in the Spotlight as a Hike Looks Inevitable
- Non-Residential Construction Soft in the Pandemic Economy
- Views on Interest Rates and the Move in Treasury Yields
- Inflation Indicators Healthy but Still on the Rise
- Risky Assets Sell-off Despite Optimistic Economic Outlook
- The Latest on Vaccinations and What it Means for Growth
- Highlights of the Fed's "Economic Well-Being of U.S. Households in 2020" Report
- Relative Factors and Forward Change in Federal Funds Rate
- Can Wage Growth Keep Up With Inflation?
- With That, We Carry On
- Supply Pressures Looking to Peak
- Cars are Still Expensive, Workers are Still Needed
- Recovery Continues, but Delta Looms
- Fed Eyes Tapering While China Sees a Setback
- Review the Fed Previews
- No Tapering Yet
- Labor Day on Labor Day
- Delayed or Disappearing Growth?
- Supply and Demand Mismatch will be Evident during the Holiday Shopping Season
- Workers Find Leverage in a Tight Labor Market
- Cautiously Optimistic
- Sour Expectations Take Down the Market
- Q3 Earnings Were Surprisingly Good
- Inflation Weights on Bonds and Consumer Sentiment
- FOMC Tapers While Trade and Employment Flash Mixed Signals
- Inflation is Getting Broader, Not Cooler
- Unemployment Insurance During the Pandemic
- A Year of Normalization
- What Will GDP Growth Look Like in 2022?
- Student Loans Targeted by the Biden Administration
- The Chicago Fed Index Reverses in July
- Chinese Economic Data Faltered in July
- Stellar Jobs Report Bucks Recession Fears
- Bank of Japan Punished for Dovish Policy Stance
- Expect 75 Today
- Manufacturing Weakness in Germany has Implications for Euro Area Growth
CPI: From Transitory to Elevated to Persistent
April 12, 2022
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.