Fed Inflation Gauge Continues to Pick Up Steam

Originally published at The Boock Report

It wasn't just the BLS inflation report that came out yesterday. The NY Fed's Underlying Inflation Gauge for March in its "full data set" increased to 3.14% from 3.07% in February. It's the 10th straight month of an increase in the y/o/y gains. It's also now above 3% for the 3rd straight month and running at the quickest pace since July 2006 (see chart below).

The "prices only" measure was up to 2.23% in March from 2.21%. That's the 16th month in a row above 2%. The "prices only" measure pretty much follows the BLS CPI while the NY Fed said the "full data set" is also getting a lift "principally by survey measures of manufacturing and nonmanufacturing activity." I would say this includes the budding wholesale inflation that is building due to higher commodity prices, tight supply chains, and rising transportation costs. I've been trying to hammer home these factors as a specific focus, particularly the latter recently.


Also out was the Cleveland Fed's CPI data where the median CPI for March was up 2.5% y/o/y, a one year high. The trimmed mean CPI (basically taking out everything that is volatile) was higher by 1.9% y/o/y, the most since June.

These data points I believe help to explain the further flattening in the yield curve yesterday with short rates moving higher, especially following the FOMC minutes where they hinted at maybe 4 hikes this year. I know, intuitively we'd think that long rates would rise on higher inflation but long rates are steady due to Q1 GDP growth likely only around 2% in addition to tariff concerns.

Following the continued drop of Bulls seen in the weekly American Association of Individual Investors data (although Bears are barely rising), the individual investor's AAII saw Bulls fall down to 26.1, the lowest since August 2017. Bears were up by 6.1 pts to 42.8, the most since March 2017. From a contrarian standpoint, in the very short term, this is exactly what the bulls want to see.

Confirming the moderation seen in many of the country-specific industrial production numbers, the Euro area IP figure for February fell .8% m/o/m, worse than the estimate of up .1% but partially offset by a 4 tenths upward revision to January. The y/o/y gain of 2.9% is still good but the slowest in 4 months. The European economy has definitely cooled a bit year to date but is still running at a pretty good pace for them. The euro is down and specifically weakened when the report came out.

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