Friday, December 10, 2021

Inflation: Fed totally missed the mark on its transitory view

The Consumer Price Index (CPI) rose 0.8% month-over-month (m/m) in November, just above the Bloomberg consensus estimate of a 0.7% increase, and following October's unrevised 0.9% gain. The core rate, which strips out food and energy, increased 0.5% m/m, in line with forecasts, after October's unadjusted 0.6% rise. Y/Y, prices were 6.8% higher for the headline rate—the fastest pace since 1982—matching estimates, and following the prior month's 6.2% increase. The core rate was up 4.9% y/y, in line with projections, and following October's unrevised 4.6% increase.


Key Factors

  • The food index was up 0.7% month-over-month. On an unadjusted basis, the food index was up 6.1% year-over-year.
  • The energy index was up 3.5% month-over-month. On an unadjusted basis, the energy index was up 33.3% year-over-year.
  • The shelter index was up 0.5% month-over-month. On an unadjusted basis, the shelter index was up 3.8% year-over-year (which many observers think is grossly understated).
  • The used cars and trucks index was up 2.5% month-over-month. On an unadjusted basis, the used cars and trucks index was up 31.4% year-over-year.
  • The apparel index was up 1.3% month-over-month. On an unadjusted basis, the apparel index was up 5.0% year-over-year.

Big Picture

  • There isn't just one key takeaway from this report. There are many:
  • The Fed totally missed the mark with its transitory inflation view.
  • The inflation data make it clear that the Fed is going to announce a more aggressive tapering path at next week's FOMC meeting.
  • These data should stir concerns about a third rate hike being in the mix for 2022.
  • Inflation pressures are broad based.
  • Nominal wage gains will be undercut by inflation that will limit real spending growth potential.
  • The elevated inflation print will stand as a political pressure point.

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The 2022 Federal Budget in Charts

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