Everybody seems to be all abuzz about today’s CPI number. Its no big whoop.
Why? At this point, I think we can all agree that a 1/4 point increase at the June FOMC meeting is a foregone conclusion. So that makes today’s data more or less irrelevant to that meeting. Even if the inflation data comes in extremely benign, its but one point in a data series. Its doubtful it will impact the Fed’s thinking about the next tightening in any meaningful way.
And the August FOMC meeting is so far away, and there will be so much additonal data between now and then, including 2 NFP reports, that today’s CPI will have long been forgotten.
By August, the Fed will most likely be forced to acknowledge that either a) the economy has slowed enough that the tightening cycle is over; or 2) Inflation has gotten away from us and we need to keep tightening. By August, even Greenspan would have to admit that Goldilocks is dead . . .
Either way, today’s data point, at least as far as the Fed is concerned, won’t change very much.
On the other hand, a benign number — or even one that hits consensus — could light up the markets. The sentiment readings have all hit extremes, with the Put Call ratio, the Bull/Bear ratio, and the percentage of stocks above their 200 day moving average at levels typically associated with intermediate bottoms.
UPDATE June 14, 2006
Mike Darda adds:
headline CPI rose 0.4% m/m in May while the core CPI
rose 0.3% for the third consecutive month. The headline CPI is up
4.2% on a year-to-year basis while the core CPI is up 2.4% y/y. Three-month growth in the core CPI
(annualized, not compounded) has risen to 3.7%, the fastest pace in a decade.
Owners’ equivalent rents, which make up nearly one-third of the
core CPI, advanced 0.6% m/m during May and 5.5% A.R. during the last three months, the
fastest since 1990. On a year-to-year basis, rents are up 3.3%.
Nothing to see here folks, move along.
As Art Laffer said last night, there’s no inflation here . . .
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