Traders, investors and economists are all counting on Wednesday’s consumer-price index report to show a decline in the annual headline U.S. inflation rate for July. But there’s another figure buried in the consumer-price index data that has the propensity to jolt markets.
It’s called the core year-over-year CPI reading, a measure which strips out volatile food and energy costs. It came in at 5.9% for the 12 months that ended in June, and the consensus view is that it will inch up to 6.1% on a year-over-year basis for July.
Gargi Chaudhuri of BlackRock Inc., the world’s largest money manager, sees the core reading coming in even a bit higher, at 6.2%, while a pair of Goldman Sachs analysts are warning that the near-term U.S. inflation picture “is likely to remain uncomfortably high.” A move higher in the annual CPI core rate would be significant because it would be seen as reflecting the true underlying trend of inflation — while also dashing widespread hopes in financial markets over the past month that price gains have peaked. Many traders and investors have generally been clinging to the overall annual headline CPI rate for July, which includes food and energy — and the view that it probably fell to 8.7% or 8.8%, from an almost 41-year high of 9.1% in June, after factoring in recent declines in gas and commodity prices. “The outlook for inflation remains the primary concern for investors,” Wilmington Trust Investment Advisors’ Chief Investment Officer Tony Roth and Chief Economist Luke Tilley wrote in an email on Tuesday. “Persistent inflation is weighing on sentiment for consumers and businesses, yet economic data remains quite mixed and concerns are elevated that aggressive Fed policy could push the U.S. into recession.” “While we still expect inflation to decelerate going forward, some components will remain stubbornly high and complicate the outlook,” they said.
Signs of the financial market’s broad-based expectations that inflation is poised to ease are abundant: U.S. stocks have generally rallied from their lows in mid-June, though they finished lower on Tuesday. Meanwhile, medium- and long-term Treasury yields have dropped from their peaks in June — along with break-even rates, according to Tradeweb data. NN: I am placing a big (some would say also stupid) bet that core inflation continues to soar. This TEMPORARY reprieve in energy price will help the head line number in todays CPI report. I would like to think that institutional traders with trillions of dollars of other peoples money will at least read the first page of today’s release… Unfortunately with the people manning the trades desks, that are more interested in weddings, beach parties and where the warehouse is for tonight’s rave party… Like many generations of losers before them that caused depressions they will suffer greatly. The millennials who got everything will soon have nothing…. I can’t wait, to tell the truth i plan to help them wipe out….