It won’t be realized inflation that derails a Fed hike in March.
A close look at today’s CPI report reveals reasons for optimism on both inflation and growth.
Wage pressures may finally be building. The Labor Department recently reported that average hourly earnings for private employees rose 0.4% month-over-month – a 2.5% year-over-year rate that was the highest reading since 2009. And then October’s Consumer Price Index (CPI) report provided evidence that this is feeding through to consumer prices.
Thursday’s Consumer Price Index (CPI) report offers cautious optimism that wages may start to rise.
Wednesday’s modestly disappointing CPI report provided an endorsement of our view: Core goods inflation continued to decline, falling 0.08% over the previous month, while shelter inflation grew at 0.22%, modestly softer than its recent trend.
Recently released U.S. CPI data for July show a familiar trend: strong shelter inflation alongside weak core goods inflation and moderate inflation in core services excluding shelter. While housing costs have been the largest contributor to inflation in 2015, wages bear watching going forward.
Jul 20, 2015
We expect wages to rise over the coming year, which should result in more broad-based services inflation beyond the shelter component.
Economic and Market Commentary
Investors who monitor inflation had been eyeing the third week of June for some time: A pivotal Fed meeting, the May U.S. Consumer Price Index (CPI) report and a 30-year TIPS (Treasury Inflation-Protected Securities) auction were all scheduled to occur within a 23-hour window. All three events had potential ramifications for TIPS investors.
Today, U.S. core CPI surprised to the upside for the fourth consecutive month, logging +0.3% month-over-month, moving the year-over-year rate from 1.75% to 1.81%. Why the surprise?
February U.S. Consumer Price Index (CPI) data surprised modestly to the upside this morning, with both the headline and core measures rising +0.2% on a month-over-month (MoM) basis, which translated to a +1.7% year-over-year (YoY) rise in core CPI and a flat year-over-year reading in headline CPI.