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WE’RE HAVING A HEATWAVE: CPI SHOWS INFLATION MERCURY RISING (1031 EDT/1431 GMT)
The big, bad CPI report, which seems to have hogged all conversation this week, finally arrived on Thursday bearing tidings of hotter-than-expected inflation.
With over half of Americans vaccinated, the pent-up demand beast is being unleashed and running up against tight supply, and as expected, it’s showing up on price tags.
The consumer price index USCPI=ECI, which measures prices urban consumers pay for a basket of goods, rose by 0.6% in May, according to the Labor Department. (Full Story)
The much-anticipated number was higher than the 0.4% consensus, and appeared to fan the flames of prolonged inflationary worries, despite the Fed’s assurances that the current wave of price spikes will subside in the near term.
“These inflation numbers are numbers we haven’t seen in years, and they are likely to increase at least for a month or two,” says Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “The key is whether these numbers will prove the Fed wrong, that inflation is structural and not transitory.”
“The guessing game goes on as to whether the Fed is going to be right or wrong.”
On a year-over-year basis, core CPI USCPFY=ECI jumped by a higher-than-expected 3.8%, rising further above the central bank’s average annual 2% inflation target.
The graphic below shows how major indicators stack up against the Fed’s preferred inflation yardstick, Core PCE:
And now let’s pay a visit to our favorite curmudgeon, the misery index.
While it takes different forms, for our purposes it’s the sum of annual headline CPI and the unemployment rate.
This chart shows the misery index has hit its highest level since last July:
But if the jobless claims trend is any indication, the unemployment rate is likely to recede in the coming months as layoffs continue to fall.
A separate report from the Labor Department showed the number of U.S. workers filing first-time applications for unemployment benefits USJOB=ECI dropped last week to 376,000, coming in just above the 370,000 analysts expected.
The downward trendline likely reflects the current worker shortage seen in recent business surveys, which could in turn force employers to hike wages to sweeten the pot, further inflaming inflationary pressures.
On the other hand, unemployment beneficiaries are likely to drop off in the coming weeks. Starting this Saturday, emergency supplements are being cut off in at least 25 states with Republican governors.
Ongoing claims, reported on a one-week lag, posted a significant drop, falling to 3.499 million, retreating to about double the numbers seen before COVID sent the economy into an abrupt tailspin.
“Initial claims printing under 400,000 for the second week in a row is clearly a positive sign of improvement,” writes Sean Bandazian, Investment Analyst for Cornerstone Wealth. “Continuing claims are still abnormally elevated but given that job openings are at all-time highs and enhanced unemployment benefits are set to roll off shortly in many states, these numbers should start to improve rapidly into the summer.”
Major U.S. equity indexes are so far digesting the data well. They are modestly green in mid-morning trading, with the S&P 500 .SPX in new-high territory.
The small-cap Russell 2000 .RUT, however, is slightly red.