CPI and PPI Come in Below Expectations, Potentially Giving FOMC Some Breathing Room
There was finally some relief after a steady stream of hot inflation data. After 10 months of upside surprises, CPI finally came in lighter than expectations on Wednesday. Core CPI was slightly down and essentially flat, Food was slightly up, and Energy had the biggest drop and made the downside surprise possible. The 8.5% headline number is still more than 4 times the Fed’s target, but the progress was a very welcome sign for markets. In a positive turn for the increasingly beleaguered consumer, real wages also rose 0.5% MoM. A decline in the prices for used cars also helped the number come in light. The pivot of consumers from goods to services was also observable.
Still, the consumer wallet is under heavy pressure this year so far. The price of butter, for instance, is up over 26% for the past year. Eggs have increased nearly 40% and coffee is up about half of that. So, these cost pressures are having an effect. However, as our data science team has done a fantastic job of explaining, the mounting weakness in soft data. This data should be leading and is suggesting that this latest report could mark a turn in the trend. The next day PPI came out light as well which gave the bulls more encouragement. The expectations were for a gain of 0.2% MoM but the number came in significantly lower. The index, which measures wholesale prices, decreased by 0.5% MoM, mostly due to declining energy prices. This was the first time wholesale prices had fallen in 2 years.
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