Merk Investments: CPI

The April CPI came in a bit under expectations at 0.2% M/M AND 3.9% y/y. The core came in at 0.1% m/m and 2.3% y/y. Inside the data the ex-food number arrived at 0.1% m/m and 3.7% y/y. Ex-energy costs increased 0.2% and 2.7% y/y. The price of energy was flat for the month and demonstrated a 16.9% y/y. The price of services rose 0.3% and 3.3% Y/Y. The owner’s equivalent rent increased 2.6% y/y.

The arrival below expectations will quite possibly provide a temporary boost to the market in the early portion of the trading day. Whatever sentiment had been building for a pre-election rate increase should dissipate quite quickly. However, we do take the this opportunity to point out that the cost of food increased at its highest rate in almost eighteen years (0.9% m/m and 5.1% y/y) and the seasonally adjusted cost of gasoline even arriving falling -2.0% advanced 20.9% on an annual basis. These jarring increases are the primary catalyst of the rather hawkish tone adopted by the Fed of late. We do expect that the sharp increase in headline prices to continue to bleed through to the core over the middle portion of the year and drive an already elevated 2.3% reading to much higher levels.  We do not think that the market or the Fed should take false comfort from the data. We expect to see much worse numbers in both the headline and the core a bit down the road.

Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author.  It is based upon sources and data believed to be accurate and reliable.  Opinions and forward looking statements expressed are subject to change without notice.  This information does not constitute a solicitation or an offer to buy or sell any investment product, nor provide investment advice. Merk Investments does not own any of the stocks mentioned; this is not an offer to buy or sell any security mentioned.