E-piphany

Following is a concatenation of my post-CPI tweets. You can follow me @inflation_guy. Due to scheduling issues, I don’t have any further development of the observations highlighted below.

• OK, 4 minutes until CPI. If I had to guess what a theme, I would say the question of whether apparel and medical care trends continue.
• Is apparel the canary in the coal mine from recent jumps? And is CPI or PPI right about medical care? The latter has been softer.
• Weak CPI number! 0.1%/0.1% and y/y core slipped to 2.2%!
• even weaker than that…+0.07%, 2.20% exactly y/y on core. That’s a really big surprise.
• first glance – medical care y/y slipped, and apparel y/y plunged. getting more detail
• core services slipped to 3.0% from 3.1%; core goods dropped to -0.4% from +0.1%
• while i’m waiting for more detail…this CPI doesn’t mean it’s done going up; just that we can’t reject the hypothesis that it’s not.
• have to remember these are experiments – underlying inflation rate not knowable so we can only reject hypotheses.
• my suspicion: we may be able to lean more to the “apparel was seasonal” hypothesis but jury is out on medical care normalization.
• ok – apparel -0.64% from +0.89% y/y. medical care 3.29% from 3.50%. housing up small, recreation, education/comm, other all up small.
• within apparel: Mens suits/sportcoats/outerwear -7.6% from -4.6%. Mens furnishings -1.2% from +2.2%. Mens pants/shorts -5.8% from +2.4%
• but WOMENS outerwear 5.5% from 3.2%; suits & separates +0.2% from -0.3%. Dresses down though, -6.3% from -4.3%.
• so could be seasonal…but we will have to wait to know for sure. weird, anyway.
• in housing: Primary rents 3.66% vs 3.68%; OER 3.12% vs 3.16%. lodging away from home 2.27% v 4.19%. so rise in housing was HH energy.
• In Medical: drugs 2.49% v 2.34%. Prof svcs 2.27% vs 2.54%. hospital 4.33% v 4.90%. Insuance 6.20% v 5.97%. Similar read to PPI.
• PPI and CPI don’t have much overlap, or we would rely more on the earlier PPI. So hard to read much.
• does mean core PCE not likely to converge as quickly with core/median CPI.
• ok last tweet: early estimate on median still looks like +0.17%, 2.39%, down vy slightly from 2.43% y/y.

None of this changes the underlying focus: median at 2.4% and core converging upward to it. And there’s still no sign that housing is about to weaken. Core goods had been strengthening; this has been arrested but it may be a function of the early Easter (however, Easter occurred for men, too…). As I suspected early – this is a holding-pattern number, certainly weaker than inflation bulls expected but it doesn’t dash the underlying trends…yet. This makes the April number, released next month, more important!

And none of this changes the underlying points I made in a Marketwatch opinion article that appeared yesterday. You can read that article here.