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CPI

May 06 2022

Stocks, Inflation, And Reverse Causality

  • May 6, 2022

Forget interest-rate hikes and quantitative tightening. There exists a very important weapon in the fight against inflation that the Fed did not have at its disposal in the 1970s: an overvalued stock market.

Mar 05 2022

Market Gets A Speeding Ticket

  • Mar 5, 2022

PPI and CPI inflation reached levels that were “too hot to handle” last April and July, respectively, yet the blue chips kept going up through year-end. Large Cap investors who trimmed stocks in response to the violation of these long-time inflation speed limits, however, haven’t missed out on much, and Small Cap investors who did so are happy.

Feb 05 2022

What “Causes” Inflation To Decline?

  • Feb 5, 2022

Last year’s consensus view that inflation would prove “transitory” missed the mark. There’s no reason for shame; inflation forecasting hadn’t been a required investment skill for the previous 30 years.

Dec 07 2021

An Inflationary Wealth Effect

  • Dec 7, 2021

Causation between the economy and financial markets is never a clear thing. The optimistic group formerly known as “Team Transitory” believes a peak in the inflation rate is near, presumably clearing the way for even greater P/E multiple expansion than already seen in this cycle.

Dec 07 2021

A 2023 Inflation Peak?

  • Dec 7, 2021

We don’t profess to be professional inflation forecasters, but are struck by a sort of “temporal” mismatch in the arguments used by those who believed the inflation pick up would be temporary. Specifically, the most commonly-cited bullish inflation arguments have been secular in nature, based on long-term trends in technological innovation, demographics, and free trade.

Dec 07 2021

Is Powell A “Phillips Curve” Guy?

  • Dec 7, 2021

With consumer price inflation raging at 6.2% and few indications of an imminent rollover, Jay Powell has waved the white flag and retired the ill-begotten “transitory” descriptor. The timing of Powell’s concession is intriguing—perhaps he’s a fellow follower of a simple inflation model: the Output Gap.

Nov 18 2021

Powell’s Dovish Accomplice

  • Nov 18, 2021

Last week we argued that U.S. money growth remains way too high to reasonably expect a peak in consumer price inflation during the next few months. At the peaks of the last five bouts of inflation of 5% or more, real growth in the M2 money supply had turned negative in four cases and had slipped to less than 1% in the other one. Today, real M2 is growing at nearly a 7% rate.

Nov 12 2021

Timing Is Troubling For “Team Transitory”

  • Nov 12, 2021

From the start of the inflation upswing this spring, pundits cited well-known disinflationary factors they believe will soon halt the current inflationary upswing—like free trade, the speed of technological advance, and aging populations globally. 

Nov 05 2021

A Marginal Measure Of Margins?

  • Nov 5, 2021

For those believers in a new economic- and stock-market era, there’s good news. The CPI-PPI spread has not been an effective proxy for profit margins during the 1995-to-date “New Era.” But, the failure of an inflation measure during a mostly non-inflationary era shouldn’t come as a surprise.

Oct 07 2021

Rethinking Real Rates

  • Oct 7, 2021

Consumer Price Inflation has stabilized in the 5.2–5.4% range in the last two months, giving the Fed hope that it’s reached a near-term peak. Still, the presence of 5%-plus inflation in the face of ZIRP leaves the real short-term Treasury-bill rate about as deeply negative as it has ever been.

Aug 06 2021

Golden Milestone

  • Aug 6, 2021

Fifty years ago this month, Richard Nixon formally suspended the convertibility of U.S. dollars into gold. Editorials commemorating this have tended to have a celebratory tone, and why not? Abandoning the gold standard greatly expanded the arsenals and imaginations of policymakers, both of which have been on historic display over the last 18 months.

Aug 06 2021

The “Rule Of Twenty” Revisited

  • Aug 6, 2021

Pundits could reasonably argue the market has never been more expensive in light of the prevailing rate of inflation. That’s the conclusion of the “Rule of Twenty,” which proposes that the stock market’s P/E ratio and the trailing 12-month Consumer Price Inflation rate should sum up to 20.

Jul 08 2021

Music For The “Mania”

  • Jul 8, 2021

At some point during the June/July streak of seven-consecutive S&P 500 daily-closing highs, an album from 1980 popped into our heads: Nothin’ Matters And What If It Did—released when John Mellencamp was still known as John Cougar. It brought to mind some “nothin’s” that seem not to matter.

May 07 2021

Inflation Watch

  • May 7, 2021

April ISM readings, both for Manufacturing and Services, were hot across the board. That’s good news for a still-recovering Main Street, but it manifested in ways that have frequently caused problems for a famous Street located in Lower Manhattan.

Apr 08 2021

Still Heating Up…

  • Apr 8, 2021

The Fed’s reflationary efforts are showing up everywhere except in the measure that’s engineered specifically to minimize them—the Consumer Price Index. It’s a virtuous circle, until it is not

Dec 05 2020

A 40-Year Inflationary Echo

  • Dec 5, 2020

When measured by the gains in stocks, gold, and house prices, there has been just one other occasion in which asset inflation was as “broad” as today—late 1980. But the differences in underlying fundamentals between then and now couldn’t be more stark. 

Nov 20 2020

The Rotation Should Hardly Be A “Surprise”

  • Nov 20, 2020

Consumer Price Inflation of 1.2% for the twelve months through October remains way below the Fed’s long-time 2% objective, which is nothing new. But a first step in getting inflation to eventually run a little bit “hot” (the Fed’s new objective) is to break the long-term disinflationary psychology among consumers and investors, and that is clearly happening. In fact, based on the excellent “Inflation Surprise” Indexes published monthly by Citi, the U.S. is now the world’s inflationary hotspot!

Jun 12 2020

Keep An Eye On What Your Stocks Will Buy

  • Jun 12, 2020

News that the Bureau of Labor Statistics may have undercounted the May unemployment rate by six percentage points should remind investors of the danger of taking government economic reports too seriously. Regardless of the figure, though, unemployment is no doubt near its peak for the downturn.

Dec 28 2018

Stocks Just Delivered A Strong Deflationary Impulse

  • Dec 28, 2018

Investors have just suffered a negative wealth effect that will likely work to tamp down inflation over the next year.

Oct 12 2018

Inflation—Another Small Miss

  • Oct 12, 2018

The latest CPI numbers missed market expectations. The problem is not with the actual CPI numbers, but merely the fact that market expectations are still a tad too high. More disconcerting is the cool trend in housing inflation.

 

Jan 06 2018

Keep An Eye On “Relative” Inflation

  • Jan 6, 2018

While our Group Selection (GS) framework hasn’t yet warmed up to commodity-oriented industries, our macro work suggests perhaps it should.

Dec 14 2017

Inflation-As Flat As The Yield Curve

  • Dec 14, 2017

The latest Core CPI number disappointed again. The divergence between inflation break-evens and the yield curve is puzzling. Given the lack of inflationary pressure and the Fed’s projected rate path, it would not surprise us to see a flatter curve without the help of fiscal stimulus in the next few months.

 

Nov 16 2017

Inflation-Yield Curve Too Flat

  • Nov 16, 2017

The latest CPI numbers are in-line with expectations. The divergence between inflation break-evens and the yield curve is worth close monitoring. Given that the global recovery is still intact, we don’t think the current inflation picture justifies the flatness of the yield curve.

 

Oct 13 2017

Inflation - Goldilocks Still Intact

  • Oct 13, 2017

The latest CPI numbers missed expectations but we consider it a passable reading.

Sep 08 2017

Spoiler Alert! The Bond Bear Is Already Here...

  • Sep 8, 2017

Bond investors residing in the Lower For Longer© camp no doubt feel vindicated by the summer rally that’s taken yields on 10-year Treasury bonds to as low as 2.06% in early September.

Aug 11 2017

CPI Weakness Is Broad-Based

  • Aug 11, 2017

The CPI numbers have disappointed five months in a row. The real bad news for inflation hawks is that the weakness in core CPI is broad-based. There is hope for inflation to stem its recent weakening trend soon as the Chinese CPI has already stabilized and started to turn up.

 

Jul 14 2017

Inflation Slip Sliding Away

  • Jul 14, 2017

Temporary and transitory? The CPI numbers have come in below estimates four months in a row.

 

Jun 15 2017

Inflation Disappoints Again

  • Jun 15, 2017

The CPI numbers have disappointed three months in a row. Weak commodity prices do not inspire higher inflation expectations. The global scope of inflation deceleration adds more weight to the recent soft readings. However, lower bond yields relative to nominal growth rate is inflationary and buffers the impact of weak inflation and rate hikes.

 

May 12 2017

Inflation Subpar Again

  • May 12, 2017

The latest CPI numbers are slightly weaker than expected. We think expectations for higher inflation are still on the high side. The global scope of inflation deceleration adds more weight to the recent soft readings. Patience is the right approach for the reflation trade at this point.

 

Apr 19 2017

Inflation-Weaker Sooner Than Expected

  • Apr 19, 2017

The latest CPI is weaker and the softness was sooner than we expected.  More alarming is the recent broad-based deterioration in economic data.  Lower inflation expectations have flattened the yield curve recently, which hurt Financial stocks. We believe inflation has likely peaked for the time being and patience is the right approach for the reflation trade at this point.

 

Mar 16 2017

A Dovish Hike--Positive For Inflation

  • Mar 16, 2017

The dovish rate hike is a positive for inflation and credit. A hawkish message right now would have been quite detrimental and self-defeating in terms of realizing two more hikes later this year. We believe achieving sustained 2-3% inflation could be harder than most people expect going forward. Overall, we are encouraged by the dovish hike but we think the real test for inflation is when the base effect starts to wane.

 

Mar 07 2017

Lo And Behold, Another RATIO!!

  • Mar 7, 2017

For managers who must remain fully invested in equities (or “paid to play,” as we’ve often called it), the level of inflation might prove a less important consideration than its character.

Feb 15 2017

Inflation-All About That Base

  • Feb 15, 2017

CPI numbers were strong and better than expected. A big part of the recent upturn in inflation has to do with the much lower base from a year ago. We are seeing upside inflation surprises on a global basis but wage inflation is still disappointing. We are encouraged by the general uptrend in inflation data but we think the real test comes after the positive base effect subsides.

 

Jan 19 2017

Deflationary Fears Decrease

  • Jan 19, 2017

CPI figures for December matched consensus estimates.  The Federal Reserve should be pleased to see the modest uptrend in prices.  Sustained price inflation still faces a number headwinds including: resource slack, a strong Dollar and a weakening Yuan. Energy prices saw the largest gains in 2016 after a brutal 2015. Within the Core CPI, medical care experienced notable gains.

 

Dec 16 2016

Encouraged...But Not Counting Chickens Yet

  • Dec 16, 2016

CPI numbers were largely in line. There are encouraging signs that inflation is turning on a global basis. The path to sustained higher inflation is not going to be a smooth one and too much enthusiasm can prematurely end this reflation theme. We are encouraged by the general uptrend in inflation and inflation expectations but certainly do not want to take higher inflation as a given.

 

Nov 18 2016

Higher Inflation Not Imminent

  • Nov 18, 2016

· Headline CPI was in line but Core CPI missed.

The powerful prospect of a huge fiscal stimulus, a substantial tax cut and meaningful deregulation stoked hopes for higher growth and inflation. The Trump-induced reflation trade is still considered risk positive.  The market is putting a lot of faith in Trump’s new policy package but its actual impact on the economy remains to be seen.

 

Oct 18 2016

No Imminent Threat Of Higher Inflation

  • Oct 18, 2016

Headline CPI was in line but Core CPI missed.  The current reading still fits the overall “Goldilocks” inflation backdrop and should be considered favorable for the risk rally. The reason behind the recent rise in inflation expectations was the market’s perception of a policy shift away from monetary easing towards fiscal easing.

 

Sep 20 2016

Inflation-No Impact On Policy Decisions

  • Sep 20, 2016

Inflation is slightly stronger than expected but has no impact on policy decisions. Right now, both the market and the data are telling the Fed to put the rate hike on hold. If the Fed decides to pass in September, there is a very good chance that the Fed might not be able to hike at all this year.

 

Aug 24 2016

Inflation-Keeping The Fed On Hold

  • Aug 24, 2016

Inflation is weak in July but the rebound in oil prices, the renewed weakness in the dollar and the strength in Chinese Yuan are all positive for inflation expectations in the near term. The disinflationary headwinds from outside of the U.S. are only getting stronger, not weaker. It’s hard to disagree with the market’s low rate hike expectations.

 

Jul 18 2016

Inflation-A Slow Burning Fuse

  • Jul 18, 2016

The latest CPI reading is positive for the overall risk rally. We continue to recommend a more patient approach towards inflation. The key market-based drivers of inflation have turned negative. But the recent key economic numbers have mostly exceeded expectations.