Highlights of the June 2021 US CPI report
- Highest since 2008
- Prior was +4.2% y/y
- Ex food and energy +3.8% y/y vs +3.5% expected
- Prior ex food and energy +3.0%
- CPI +0.6% m/m vs +0.5% expected
- Prior m/m reading was +0.8%
- CPI ex-food and energy +0.7% m/m vs +0.5% expected
This is a big upside surprise for the second month in a row. Just one of the economists in the BBG survey had inflation at 5.0% or higher.
Wage data:
- Real avg hourly earnings -2.8% vs -3.7% y/y prior
- Real avg weekly earnings -2.2% vs -1.7% y/y prior
As I noted before the report:
In the prior report, headline CPI was 4.2% compared to 3.6% expected. The 10-year yields rose 6 bps on it and that gain lasted all of three days, the dollar gain was even more short-lived.
The bond market appears to have concluded that it will all be transitory. Of course, if the data continues to beat on the upside, it will have to reconsider but until proven otherwise the trade will be to fade inflation fears.
It hasn't taken nearly that long this time. Despite the upside surprise, the dollar is sinking and gold is bouncing back. The pop didn't even last 3 minutes.
Here's a great chart from Manulife illustrating why so many people believe inflation is transitory:
Looking ahead, all the talk is about rent inflation and whether that will return.
