CPI says bacon costs more

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At least you get what you paid for. Picking up a beater used car costs 41.7% more than last year. Luckily, today’s CPI numbers contained some silver linings. Expect the expected Overall headline inflation came in at 5.4%, a touch over 5.3% estimates. Core inflation, excluding food and energy, rose 4.3% vs estimates of 4.4%. And that’s a big win. While inflation is just under the highest 12-month rate since 2008, it’s limited to a few areas. Here are the key highlights: - Used auto jumped 41.7% year-over-year (YOY). - Excluding used autos, CPI headline would have been 3.95% - Excluding used autos, CPI core would have been 2.47% - Medical care commodities was the only area that fell YOY at -2.1%, but rose month over month (MOM) 0.2% - Crazy enough, health insurance dropped 8.5% YOY! - Services less energy services jumped 6.4% YOY and added 1.69% to the CPI headline number. - Rent jumped 2.9% year over year, adding 0.91% to headline and 1.15% to core CPI. - Hotels jumped 24.1% YOY, adding 0.22% to headline and 0.28% to core CPI. - In fact, primary residence rent only increased around 2% Take away autos and rent (which includes hotels), you’re down to 3.02%. Yes, that’s still higher than the 2% threshold we typically like. But that can easily be explained by the labor challenges as well as supply chain disruptions. Why inflation will likely improve Used auto inventories are down as are new autos. As car companies push more product out the door in the coming months, it will free up used autos for sale. Additionally, you can’t have used auto prices head much higher. They’re already abutting into new car price territory. How do we know? April to May used auto prices jumped 7.3%. May to June they jumped 10.5%. June to July they only jumped 0.2%! In fact, the rate of change across the board is slowing. Headline CPI was up 0.5% MOM compared to 0.6% and 0.9% the prior two months respectively. Headline CPI was up 0.5% MOM compared to 0.6% and 0.9% the prior two months respectively. Put it this way, of the 6 major inflation subcategories, only one (energy services) decelerated in June. That is to say, the rate of increase MOM was lower than the prior month. In July it was 4. At the 19 third level subcategories, 5 decelerated in June compared to 12 in July. The point is inflation is now increasing at a slower rate. Who benefits? Equity markets for one. This data gives Jerome Powell and the Fed the license they need to keep rates low. And as we learned over the last decade, you don’t fight the Fed. You might think automakers would see improved margins. But for the higher prices they charge, lower productivity due to supply and labor shortages offsets those benefits. However, they will benefit further down the road in a year or two. Our hot take The data suggest inflation is beginning to taper. While it’s unlikely we see it below 2% anytime soon, 3% for the next year wouldn’t be out of the cards. To ensure delivery of all emails, [whitelist us](. You are subscribed to email updates from [InvestingChannel](. To stop receiving these emails, you may [unsubscribe]( now. InvestingChannel, Inc., P.O. Box 118 New York, NY 10018. Disclaimer: This is not investment advice. This InvestingChannel, Inc. newsletter is for information purposes only and opinion-based. Futures, forex, stock, and options trading are not appropriate for all investors. 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