Big Inflation Print

shallow focus photograph of black and gray compass

It’s weird to see anyone legitimately surprised that the CPI report showed there was significant inflation in April. Virtually every prices index has been jumping off the charts in the past couple months. Almost every single company mentioned on their earnings call that input costs are rising. How could anyone be surprised CPI is rising sharply? Month over month CPI was 0.8% which destroyed estimates for 0.2%. That was a pretty strong reading since the comp was 0.6%.

Core CPI was up 0.9% monthly which tripled estimates and the comp. This was the highest core CPI monthly growth since September 1981. We’ve been seeing diffusion indexes show we are experiencing the highest net percentage of firms raising prices since the 1970s. Now we have the most important data point on inflation showing prices are rising as much as when inflation was very high. As you can see from the graphic below, this CPI report beat estimates by the most ever across the board.

Today's CPI was the largest positive surprise on record pic.twitter.com/ToaT4htQmP

— Not Jim Cramer (@Not_Jim_Cramer) May 13, 2021

Year over year CPI was 4.2% which beat estimates for 3.6% and March’s reading of 2.6%. Out of 47 estimates, the highest was only 3.9%. We have mentioned in the past that economists usually miss big changes because they are scared to predict huge jumps or declines even if the early indicators show they will occur.

Obviously, CPI had a very easy comp. In fact, the 2 year inflation stack is only 4.5%. That’s the highest 2 year stack since July 2019 which isn’t a big deal. The highest 2 year stack since 2018 was 5% in February 2018. We wouldn’t be surprised to see the 2 year stack rises above that temporarily. Inflation is going to stay elevated for a few months, but the intermediate term rate is more important.

The inflation rate should be lower when the supply chain disruptions go away. On the other hand, the initial surge of global demand for commodities hasn’t begun in earnest because the pandemic isn’t over. It seems close to over in America. The 7-day average of new cases has fallen to just 36,805. However, the 10-city average occupancy rate in office buildings was only 27.1% in the first week of May. People haven’t gone back to work yet. 

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