E The Daily Shot And Data – October 19, 2016

The United States

Let’s begin by taking a look at the latest signals on US inflation. Overall, the CPI growth remains benign with a gradual upward trend. There are, however, several developments behind the headline figures.

1. Driven by higher fuel prices (among other factors), the headline CPI came in line with expectations, showing a trend that could get us to 2% reasonably quickly.

2. On the other hand, the core CPI came in a bit below consensus, showing no signs of acceleration.

3. The spread between goods and services inflation continues to widen.

Source: Natixis, @joshdigga

4. One of the most persistent trends in US services inflation continues to be shelter CPI as the nation faces a housing shortage (which is expected to worsen in the next few years).

Rising rental costs have been the driver of shelter CPI, as rents outpace the overall core inflation (second chart below) since the start of the housing crisis in 2005.

However, homeowners are now also facing higher costs as “owners’ equivalent rent” accelerates.

5. Ex-shelter prices are now rising as well, albeit slowly.

6. The “sticky CPI” (the less volatile component of inflation), while still on an upward trend, had paused in September.

7. Medical care is one area we’ve seen a sudden jump in inflation. In September the prices on “medical care commodities,” which are mostly prescription and non-prescription medications, rose sharply.

8. The so-called “Experimental CPI,” which measures consumer prices for Americans that are 62 and older, is approaching 2% again.

And as expected, medical care is the primary driver behind this increase.

9. Several Fed officials have indicated that they want to let inflation run a bit hotter before removing stimulus. It means that the Fed’s rate hike trajectory slope may get downgraded again. The December hike, however, is still very much on the table. Here is a good summary.