The CPI rose at a “firm” pace that met expectations, solidifying expectations for the Federal Reserve to cut interest rates next week. It is also additional evidence that the battle against inflation has stalled.
The core CPI rose by 0.3% for the fourth straight month. From a year ago it rose 3.3%. The headline number also met expectations, rising by 0.3% from the prior month and 2.7% from a year ago.
Shelter costs/OER accounted for 40% of the rise. Several years ago, the Federal Reserve stated OER would not be a primary inflationary driver.
Perhaps the correct question to ask is why the Fed, with its legions of PHD economists, have been consistently wrong. Is it the data? Is it the collection of the data and how it is analyzed? Has the data been corrupted by the political process?
Regardless government data is the basis for many investment thesis and if one can’t trust the data, confidence in conclusions in the decisions that are based off the information is low. It is equivalent to flying blind.
The technology giants led equities higher as the NASDAQ 100 rose about 1.8% on the belief the Central Bank will lower rates by 0.25% while adding to the belief interest rates will decline by 80 bps over the next 12 months.
Shorter dated Treasuries were essentially unchanged but longer dated sold off thus causing a nominal steepening in the curve.
Today the PPI is released. The data is forecasting a nominal rise in producer inflation.
Last night the foreign markets were up. London was up 0.17%, Paris down 0.02% and Frankfurt up 0.03%. China was up 0.85%, Japan up 1.21% and Hang Seng up1.20%.
Futures are nominally lower as it is believed that a rate cut is fully discounted. China signaled further stimulus measures including raising its budget deficit ratio to encourage growth. The 10-year is off 9/32 to yield 4.31%.
