The Consumer Price Index (CPI) accelerated by 0.3% m/m, down from last month’s pace of 0.4%. On a y/y basis, CPI decelerated to 3.4% from 3.5% against a slightly tougher comparison set that eases meaningfully in May and June. The average m/m run rate over the last three months is 0.4%, which would put the y/y growth rate north of 4.5% by year end.
Source: Macrobond.
Underneath the headline number, there has been an acceleration in the All Items excluding Shelter Index. We have highlighted that Shelter, which has a 36% weight in CPI, has been the primary component keeping CPI elevated, and while that piece has slowed, it contributed +1.9 percentage points to headline CPI y/y growth in April. Thus, getting to 2% inflation is largely dependent on negative contributions from the other two-thirds of the CPI basket, which can be measured using the All Items excluding Shelter Index. In April, this series accelerated by 0.3% m/m, but decelerated to 2.2% y/y from 2.3%, against a 3.4% comparison from last April. This comparison set eases in May and June to 2.2% and 0.8%, respectively, making it easier to see a rate of change acceleration in those months. Given m/m growth assumptions between 0% and 0.4%, the y/y pace would accelerate between 2.3% and 2.7% in May, likely contributing more than +1.5 percentage points to headline CPI.
Source: Macrobond.
Another CPI dynamic worth noting here is the Services excluding Rent of Shelter Index, which accelerated to 4.9% y/y against a 5.1% comparison from last April that eases to 4.2% in May and 3.2% in June. The m/m growth rate has averaged 0.6%, with the latest month slowing to 0.2%. Given m/m growth assumptions between 0% and 0.6%, the y/y pace would accelerate between 5.0% and 5.6% in May, likely contributing more than +1.5 percentage points to headline CPI.
Source: Macrobond.
Outside of the easing base effect setup within CPI, we are watching other measures of inflation like the Producer Price Index (PPI). In April, PPI accelerated by 0.5% m/m to 2.2% y/y against a 2.3% comparison that eases to 1.2% in May and 0.3% in June. Again, the base effect setup suggests it will be mathematically easier to see a rate of change acceleration in PPI in those months. Additionally, the PPI for All Commodities moved into positive territory for the first time since February 2023 as the comparison set has eased meaningfully and will continue to do so through June.
Source: Macrobond.
Turning to the market side, the CRB Index, a measure that tracks a broad mix of commodity prices, has increased by 10.8% on a 3-month basis and is up by 19.5% over the last year.
Source: Macrobond.
Within energy, WTI Crude Oil has started to slow on a 3-month basis at -0.7% but is still up 6.7% y/y at $78.66 through May 21st.
Source: Macrobond.
Copper, a good signal for global industrial demand, has increased by 13.7% in the last month and is up 33.4% on a 3-month basis. Iron Ore has started to move higher in the last week, now up 8.8% compared to last year. Steel has been an outlier in terms of market-based industrial demand signals and is down 28.0% from a year ago, but the pace of that deceleration has been slowing over the last month. To round out the industrial metals’ setup, Aluminum, Nickel, and Tin are up 22.6%, 32.1%, and 26.3% on a 3-month basis, respectively.
Source: Macrobond.
Precious metals have seen a similar move higher over the last three months with Gold up 19.9%, Silver up 36.0%, and Platinum up 16.4%.
Source: Macrobond.
Turning to trends in agriculture in the last three months, Wheat is up 24.4%, Corn is up 10.0%, and Soybeans are up 5.5%. Cocoa, which had been making record highs at the end of April, is down 33.8% in the last month but is still up 145.2% compared to last year.
Source: Macrobond.
The major takeaway from the CPI, PPI, and commodity price setup continues to be centered on the declining probability that the pace and amount of Fed Funds Rate cuts, in the timeframe that the market had expected, will likely be pushed out further. As we move through the rest of 2024, we will provide updates on the underlying trends in various inflation measures.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Investment Strategist
Boyd Watterson Asset Management, LLC