US Consumer Prices Pick Up in Bumpy Path Down for Inflation Core and overall CPI accelerated in November from prior month
(…) Shelter prices, which make up about a third of the overall CPI index, rose 0.4%, offsetting a decline in gasoline prices. Economists see a sustained moderation in the shelter category as key to bringing core inflation down to the Fed’s target.
Excluding housing and energy, services prices climbed 0.4% from October, picking up from the prior month, according to Bloomberg calculations. (…)
Unlike services, a sustained decline in the price of goods has been providing some relief to consumers in recent months. So-called core goods prices, which exclude food and energy commodities, fell for a sixth month, matching the longest streak since 2003.
“This report paired some serious deflation in core goods with strength in core services,” Omair Sharif, founder of Inflation Insights LLC, said in a note. “As such, I don’t think this is a great number for Fed officials, or market participants, hoping to change the conversation to rate cuts.” (…)
So many ways to skin the inflation cat.
I think this chart from Goldman Sachs pretty well sums up what’s going on: the 6m annual rate of change of core CPI is almost back to its pre-pandemic level.
But only because core goods prices (21% of CPI) have been deflating as supply channels unclogged and China exports its own goods deflation.
One might even argue that all this Fed-tightening since spring 2022 has yet to actually impact demand.
Inflation on services, both rent and “other core services” has stabilized at twice pre-pandemic trends. CPI-Rent keeps rising at 0.5% MoM (last 4 months) despite everybody’s year-long forecast that rentflation would “soon” melt down.
Core services ex-rent picked up to +0.44% in November after a heart-warming +0.22% last month. Last 3 months: +5.2% annualized.
Bloomberg’s John Authers:
For years, services ran at about 2% per year, while goods inflation was zero. They spiked together in 2021 and 2022, but now goods is back to zero (so there’s certainly an argument that this element of inflation was transitory), while services is still at roughly double its pre-pandemic norm. Annual core services inflation was unchanged in November compared to the previous month. (…)
Today’s Authers’ column will surely feed the rent bulls:
If we look at indexes of rents based only on the leases taken out in the last month (rather than on all leases currently in effect regardless of when they started), then the one kept by real estate group Zillow has a mixed message. Rents have been falling for the last two months, it says, but that followed a string of gains, which are also yet to show up fully in the data:
But if you closely look at the chart, you notice the obvious seasonality of the data.
It so happens that Zillow also provides a seasonally-adjusted series which shows that rents have actually been rising continuously, including the 0.3% MoM advances in each of the past 2 months.
This is for new rentals where supply is rising, as opposed to renewals, 90%+ of all leases, which the BLS data measure.
The Fed would be mistaken to even hint at “mission accomplished”.
A few charts from the Atlanta Fed:
Country Garden Surprises Creditors With Full Yuan Bond Repayment
Country Garden Holdings Co.’s representatives told some holders of its 800 million yuan ($111 million) bond with a put option due Wednesday that it has remitted funds to fully repay the note’s principal outstanding and interest, people familiar with the matter said.
With the unexpected decision for full repayment, the distressed Chinese developer will avoid what would otherwise be its first default on a local yuan bond. (…)
But challenges facing the company, which is one of the world’s most indebted developers, have by no means ended. It posted a 77% in sales in November despite a slew of policy measures to revive homebuyers’ confidence. (…)
- Chinese Leaders Vow to Step Up Support for Flagging Economy Pledges on government spending and monetary support come as data points to slowing growth
(…) Still, Chinese leaders offered few specifics Tuesday on how they intend to reignite consumer and business confidence and reinvigorate growth.
Chinese leader Xi Jinping presided over the two-day meeting, where leaders urged officials to increase fiscal stimulus and help expand domestic demand, according to Chinese state media. They also acknowledged economic challenges, including “excess capacity in certain industries and weak sentiment in the society,” according to a readout of the meeting. (…)
At the meeting, Chinese leaders vowed to expand consumption and raise income for both urban and rural residents but offered little sign that they may pivot to giving cash handouts to households, despite repeated calls from policy advisers and economists to do so. (…)
Still, the meeting didn’t spell out a plan to help cash-strapped developers finish tens of millions of uncompleted apartments, a crucial step that economists believe will help restore household’s confidence in the government. (…)
A top Chinese housing official pledged to avoid a cascade of debt defaults by property developers, among the strongest commitments yet to cushion an escalating real estate liquidity crisis.
China will “forcefully prevent developers from defaulting on their debts all at once,” Dong Jianguo, Vice Minister of Housing and Urban-Rural Development, said at a conference on Wednesday, state broadcaster China Central Television reported.
Regulators will satisfy the reasonable financing needs of builders and help them to solve short-term cash problems, the vice minister said. (…)
The escalation in rhetoric is unusual because Chinese authorities have largely avoided directly commenting on developer defaults in official statements. (…)
The vice housing minister also differentiated between financially sound and insolvent developers on eligibility to receive government support. Builders that violate regulations and lose operating capabilities should be liquidated under the rule of law, Dong added.
SENTIMENT WATCH
The Rising Tide That Lifted Some Dead Cats (John Authers)
The rally that began in late October, spurred largely by the perception of a volte-face by the Federal Reserve, has lifted almost any asset you could name. (…)
The following dashboard graphs everything with 100 set for Oct. 27, the Friday when the S&P 500 hit bottom. The pattern is strikingly similar across assets, but it’s startling to see how those most out-of-favor have fared best. Commercial real estate, led by offices and retail malls, has rebounded almost 30% in six weeks, while US regional banks have gained more than 20%. Lower rates should directly help real estate, by making their rental yields more competitive, while any reduction in long-term yields should raise the price of the bonds burning a hole in regional banks’ balance sheets and offer them a chance to recover, so gains on news of falling rates make sense. The scale of the gains is impressive, however:
Perhaps most startlingly, if you really wanted to make money out of the market turn, you should have put it in meme stocks. The great hit of early 2021, meme stocks included companies with well-known brands that had fallen out of favor, such as GameStop and the AMC cinema group.
The meme stock phenomenon has fizzled so badly since then that the exchange-traded fund that traced the specially created Roundhill Meme index recently announced that it would be shutting its doors. And yet, somehow, that index has rebounded by a third since the market bottomed. The most heavily shorted stocks, as identified by Goldman Sachs, have also enjoyed a 20% rebound, although their prior fall had been even worse.
One area where the shift in rates sentiment seems to have made the greatest difference is in the emerging markets. The MSCI index for EM excluding China has enjoyed a rebound of more than 10%. With lower US rates and a weaker dollar, their prospects loom that much rosier.
It’s possible to label this as a broadening of a market that had grown alarmingly concentrated. It’s equally easy, however, to cast it as a “dead cat bounce,” the charming Wall Street term derived from the fact that even a dead cat will bounce if you drop it far enough.
The market can still continue to widen — which it will if “soft landing” data continues to come in — even as it weeds out some of the rebounds that owe more to liquidity-driven speculation than anything else.
