- Core CPI landed at 0.2 again with mixed details
- Breadth of price pressures is nevertheless still rising
- UofM sentiment plunged, inflation expectations moved up…
- ...but unemployment expectations soared…
- …and they have an uncanny knack at forecasting this
- US CPI / core CPI, m/m %, SA, March:
- Actual: 0.9 / 0.2
- Scotia: 1.0 / 0.3
- Consensus: 0.9 / 0.3
- Prior: 0.3 / 0.2
US core cpi was up by 0.2% m/m SA without rounding and hence a tick beneath most expectations while matching the prior month’s reading. US headline CPI was up by 0.9% and on the screws. It’s too early to get any transmission into core so personally I would fade that reading from a policy standpoint.
Annualized m/m core CPI inflation is tracking close to 2% (chart 1).
Rising breadth will concern the hawks on the FOMC (chart 2).
Core goods inflation picked up a bit over the past two months while core services inflation has been ebbing (charts 3, 4).
The SA factor for core CPI was unusually high—in fact, a historic high comparing like months of March over time (chart 5). Because it’s driven by a recency bias skewed to the pandemic-onward period, this means it probably overstated core inflation.
All that said, the BLS is continuing to use a very high proportion of proxy methods for gathering prices by drawing upon substitute products and substitute markets where their resources and sampling methodologies are unable to get data (chart 6). At 39%, a large portion of the CPI basket is suffering from low data quality.
The next few pages offer plenty of charts to consider but we’ll keep this one brief. March CPI won’t influence a thing at the Fed and barely drew any market reaction. It’s a first stab at the war’s effects, it’s too early for core transmission to occur, and there remains uncertainty around duration and magnitudes of the shock and how it impacts inflation and jobs.
Consumer Sentiment Plunges
University of Michigan consumer sentiment fell sharply to 47.6 in March from 53.5 on a combination of current and expected conditions. That’s worse than expected by consensus.
Consumers’ inflation expectations moved higher (chart 7).
What consumers expect to happen to unemployment in future remains concerning (chart 8). It’s soft data, but has never sent a false signal. Consumers are closer to their employers’ plans, the water cooler and Teams talk etc relative to markets and forecasters. I hope they’re wrong this time. Otherwise, what they are signalling is one of the few recession signals that points to massive job losses in which case nuts to inflation, the Fed may pivot more aggressively than our –50bps forecast spread over Q4/Q1. Consumers may be one part antsy about the cycle, the composition of policy and market risks, and AI’s coming effects.
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