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In 30 Short Days Multi-Year Price Inflation Became No More

CAMS Weekly View from the Corner - Week ending 11/17/23

November 20, 2023

This past Tuesday the Bureau of Labor Statistics (BLS) released the monthly update on price inflation via the well recognized Consumer Price Index (CPI) report.  Within the CPI is a treasure trove of details and information on price inflation.  The headline CPI number is what customarily gets media attention.  Deeper details are typically ignored.


We will dig deeper on the updated release within this edition but first want to offer context relative to “The Narrative” (our in-house phrase) post CPI release back on Tuesday morning.


The Narrative is our quick reference phrase to the consensus view that price inflation is dead, the Fed is done raising rates and with these two placed together will have the Fed cutting rates soon.  For perspective, this consensus view is around 2 years old now which along the path witnessed several additional rate hikes.


Make no doubt about it this stopped clock analysis will be right at some point.  Like said clock it is right twice a day it is just the other 23 hours and 58 minutes that’s the issue right.  To be straightforward on this, for our part, we do not offer or favor predictions as we much prefer to focus on data and evidence along with history as general guides whereby they answer how likely X outcome may be.


It seems a stretch through the data, evidence and history that multi-year price inflation that rivals decades past can be swept away with barely a mark left throughout the economic and stock market structure.    Regardless, Last Tuesday, post CPI release, The Narrative went full throttle!


In the short 30 day time span between the September to October CPI release our multi-year price inflation issue went bye-bye – poof – gone, nothing to see here any longer if the consensus view is correct.


Specifically, the October headline CPI Index itself did not increase in that one month timeframe.  To be clear, it was still notably higher than its one year ago number and also, higher than its number back in late spring of this year which marks a few months ago.  Regardless, with this, per The Narrative, the Fed is done with raising - bring on the cutting!


Again this consensus narrative may be correct – maybe, time will tell.


For our part, let’s dig in.  To begin we offer Chairman Powell from the most recent Fed interest rate policy meeting press conference.


“Well, I think what we're looking at is are we still, is inflation still broadly cooling? Do we, is it sort of validating the path we saw over the summer, where inflation was clearly cooling and coming down. Now we've seen periods like that before, and they've just, there hasn’t been follow through, the data have bounced back”.

Transcript Link:

Above is the CPI:  All Items price index.  This is the index itself rather than a percentage change chart this way we can see the actual price index and what its path has looked like and hence evaluate its progression.


To begin, left to right, our red horizontal line notes the calm price inflation behavior of year 2020 for perspective prior to launch.


Our first red arrow then highlights the launch point of January 2021 with a relentless ride upward depicted to current day.  (This by-the-way while any D.C. official who could find a microphone assured the citizenry this was “transitory” with the consensus view at that time fully agreeing.  Via the citizenry’s lived experience we know that was all dead wrong.)


Our three red circles speak to our excerpt quote from Chairman Powell above the chart.  Our emphasis is added with the underline whereby he offers we seen this movie before if you will.  That is, each red circle reflects a month or two where price inflation did not rise but that did not end the trend of continued strong price inflation.


In the grand scheme of the trend note how the small red circles are but blips on the screen which is emphasized by our second red arrow denoting the trend remained strongly intact.  The obvious conclusion is blips do not equal the end of a price inflation era which is what Powell was offering in our excerpt quote.


Pay close attention to our upper most right red circle.  That circle denotes our most recent CPI release whereby the index itself did not rise in the 30 days of October.


Our aforementioned “Narrative” i.e., consensus price inflation expectation kicked into overdrive offering this is proof positive that price inflation and rate hikes are done and surely rate cuts will be coming soon.  Seriously?  30 days of data, a blip on the screen equals it’s all good again?  We never know for certain but this seems like a tremendous stretch.


Fall Season CPI Remains Higher Than Late Spring Season CPI


Above we briefly mentioned that while the CPI index itself had gone flat for the month of October it remained north of its year ago results as well as the results posted in the late spring season of this year.  To be clear what we are focusing on when offering this is the percentage change of the CPI which is the customary approach to reporting this economic measure.

Above is the CPI:  All Items index as in our first chart but this covers the previous decade and also denotes the percentage change compared to a year ago.  Our red circle takes us right to the focal point.


As of the most recent release we see for the month of October CPI was up 3.2% compared to a year ago.  While this is lower than the previous month’s year-over-year comparison note how our red horizontal line within the circle highlights CPI remains higher on a percentage growth basis than it was back in June of this year.


While our aforementioned reference Narrative offers it’s a wrap on price inflation etc it is important to note that the percentage rate still remains higher than the low point we have seen in 2023.  In addition, the very important part is all of these percentage rates – be it June or our most recent release for October – remain far north of the Fed’s 2% target level.


In our most recent edition we offered how the Fed, communicated by Chairman Powell, went full ad nauseam at the press conference that the multi-decade Fed policy of 2% inflation target is not and will not be changed.  This leaves the current 3.2% level uncomfortably well north of said target.  Regardless of these data facts - that chart right there (2nd chart) supposedly is screaming our historic price inflation era has come to a conclusion – it’s over, the fight has been won - per The Narrative.  Hmmm….


As offered at the outset of this edition the CPI report offers a treasure trove of data that begs to be shared with the above being a small take on what we could have shared in questioning the consensus via the data.  To keep this edition somewhat succinct to the point that the consensus view went off the rails relative to the actual data we will share other aspects of the price inflation backdrop in coming editions as we wrap up year 2023.


Until then, we wish you a happy and safe Thanksgiving with friends and loved ones!

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis


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