The Dividend Cafe - The DC Today - Tuesday February 14, 2023
Episode Date: February 14, 2023Today's Link: https://bahnsen.co/3E7qE3V The CPI number for the month of January came in at +0.4% for core inflation and +0.5% for headline inflation, exactly in line with expectations. The year-ove...r-year number is down to 6.4%, vs. the high of 9.1% last summer, and less than last month’s 6.5%. This represents seven months in a row of a declining inflation rate. Core goods have now deflated by 4.8% on an annualized basis over the last four months. The deflationary drag of core goods will wear off in the months ahead as the year-over-year comparison wanes (lower comparative number, otherwise known as base effect). Shipping Costs from China are down -90% from a year ago and it seems some people just want to act like that is a small factor in all of this (or prices being 10x higher than they are now was a small factor in the previous goods inflation). I remain mystified by this willful blindness. “Owner’s Equivalent Rent” was up +0.7% on the month and 7.8% on the year. Uh-huh. The disinflationary impact from shelter is expected to become visible in the data from March through the end of the year (last March people were still signing leases higher than those the month before, but by spring the rents peaked and then downward pressure began in earnest in the second half of the year, so that gets picked up in year-over-year numbers this year). I believe the impact of this will be worth three full percentage points to headline CPI by the end of the year (meaning, shaving three points off). Some other analyst estimates have it between 2.5% and 2.8% of a downward impact. The new category of “super-core” inflation – that is, inflation on that which is left when you exclude food, energy, and housing, is sticking around 4% right now. Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com
Transcript
Discussion (0)
Welcome to the DC Today, your daily market synopsis of the Dividend Cafe, brought to you every Monday through Thursday to bring you up-to-date information and perspective on financial markets.
Well, hello and welcome to out of the CPI data.
And here's where we were.
The futures were flattish.
They were down a bit this morning.
The CPI number came at 530 a.m. Pacific time, and the futures were up 220 points, and then
they were down 100 and moved all around from there.
So at one point this morning, the market got up quite a bit, and then it was down.
Then it came back up and stayed flat for about the last four or five hours.
And in fact, was down 150 points at the end of the day after being down a lot more and
at one point being up more.
So exactly what I would have thought would happen with the Dow happened, where there
was just a bit of shaking out of the trees, so to speak.
Quite frankly, it wasn't that much. I mean, if you look at the upside that the markets have had in recent days,
and then to get a 150-point down day, it really was quite benign.
In fact, the S&P was basically dead flat on the day,
and the NASDAQ was up half of a percentage point.
But I want to go through just the inflation data itself,
if you don't mind. And there's a few things I need to kind of read here. The CPI number was
expected to come in at 0.4% on the month for core inflation, which is exactly what it did.
It was expected to come in at 0.5% for headline inflation, which is exactly what it did.
And the year over year number was down to 6.4%. Keep in mind, it was at 9.1 last summer. So you've
now had almost three percentage points of disinflation. Last month's number was 6.5. So there was even a little bit of disinflation from last month, despite the fact that energy prices moved over.
This is the seventh month in a row of a declining inflation rate.
Core goods have now deflated, not really disinflated.
Core goods have now deflated, not really disinflated.
The key difference is disinflation is a lower rate of a positive inflation number, meaning prices are going higher, but they're going higher at a lower level than they had been.
They've disinflated from whatever the number was before that you're comparing it to, month
over month or year over year, what have you.
Deflation is when you have a negative number
of price growth. And so numbers have actually gone lower and core goods have deflated at an
annual rate of nearly 5% for the last four months. That's a deflationary drag. And I think that it
will wear off in the months ahead. I don't think you're going to continue to see deflationary drag. And I think that it will wear off in the months ahead. I don't think you're
going to continue to see deflation in core goods because the base effect, the number it's been
compared to from a year earlier, will itself be going lower and lower. And I think that starts
to have an impact. But then the reverse becomes true as it pertains to the impact of shelter. I've talked about this a lot.
Owners' equivalent rent in this month's CPI number were up 0.7% on the month, which is nonsense.
They're up 7.8% on the year, which is nonsense. So the disinflationary impact from shelter becomes more visible.
I think by March, certainly April, it starts to pull in where it becomes a negative drag
on the number as opposed to a boost higher on the number as a result of the data reporting
lag of the real impact of primarily rent prices to a smaller degree housing prices themselves.
On the core goods number, I just want to make clear that when we look at why goods prices have come down,
it is very much the inverse as to why they went up and shipping costs from China. This is one data point. I could use 20
data points around supply chain relevant factoids. Shipping costs from China are down 90%
from where they were a year ago. So if people don't believe that prices being 10 times higher
for shipping was part of the input to higher prices,
then I guess they don't believe that prices coming down 90% is a factor in them being lower.
But in fact, I think it remains very obvious that that was a large factor
and the inverse or unpacking of it becomes a large factor the other way.
So just to summarize, CPI and PCE, Consumer Price Index and the Personal Consumption Expenditures,
those are the two numbers you get from the Fed.
The CPI grew at 11.1% first half rate and a 1.9% second half rate in 2022 in terms of full annualized numbers. 11.1% in the
first half of the year, 1.9% in the second. With PCE, it went from 8% in the first half of the
year to 2.1% in the second half. So two different primary inflation reads,
both showing this massive drop in the inflation number. So that's about all I have to say on the
inflation side. I think it was not a big surprise. It wasn't like that, unlike some of the past,
more recent months, the December number we got in January and the November number we got in December, where those were also very benign and moving downward, but maybe more so than expected.
This was also downward and I think reasonably benign yet expected. Okay. The small business
optimism number rose about half a point, not a big deal, but something positive,
better than
dropping because it had dropped two points in December. Lael Brenner, who is the vice chair
of the Fed right now, has been named President Biden's choice as the National Economic Council
director, replacing Brian Deese, who'd been in the same role. Brian Deese had been President
Biden's first selection for that role, replacing Larry Kudlow, who had served in that role in the Trump
administration. Consumer discretionary was the top performing sector today, up over 1%.
Real estate was the worst, down 1%. Treasury bonds barely moved up three basis points. Yields
really didn't move on the announcement. I think that's all I got. That's a lot to chew on, a lot of data, but I wanted you to get that full summary of CPI on today's
Tuesday, DC Today. We'll see you tomorrow, Wednesday. Thanks for listening, watching,
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