BREAKING NEWS: CPI Inflation Report Released! | Here's What You Need to Know

Summary

The latest CPI inflation report was released, showing headline inflation at 3.4%, slightly better than the previous 3.5% but still above the Federal Reserve's 2% target. Core inflation, which excludes food and energy, improved marginally from 3.8% to 3.6%. Despite this, the report does not provide enough confidence for the Federal Reserve to cut interest rates in June, with the odds dropping to 3.1%. The report also highlighted that energy prices have risen by 2.6% year-over-year, food prices are up by 2.2%, and shelter inflation has decreased to 5.5%. Services inflation, a key concern for the Federal Reserve, has slightly decreased from 5.4% to 5.3%. The labor market, though reported as strong, is experiencing a slowdown with fewer jobs added in April compared to March. The market is now slightly more optimistic about a rate cut in July, but the odds remain low, and predictions for September are uncertain. The speaker rates the report as a three out of five stars, suggesting it's not terrible but not great either.

Takeaways

• 📉 The Federal Reserve is unlikely to cut interest rates in June, with the odds falling to 3.1% from 3.3% previously.
• 🔍 The Consumer Price Index (CPI) report shows headline inflation at 3.4%, slightly better than the previous 3.5%, but still not enough to convince the Federal Reserve to cut rates.
• 📈 Core inflation, which excludes food and energy, has improved from 3.8% to 3.6%, but it's still significantly above the Federal Reserve's 2% target.
• 🚫 The report suggests that it will take longer than two years to bring inflation down to the target level, indicating slow progress.
• ⭐️ The speaker gives the CPI report a three out of five-star review, stating it's not terrible but not great either.
• 📊 Energy prices have increased by 2.6% year-over-year, a significant rise from negative growth earlier in the year.
• 🍲 Food prices are reported to be up by 2.2% year-over-year, but the speaker questions the accuracy of this figure due to changes in calculation methods.
• 🏠 Shelter inflation has decreased from 5.7% to 5.5%, but it's still not reflective of true market prices and is well above the target rate.
• 💼 Services inflation has slightly decreased from 5.4% to 5.3%, but remains a concern as it's linked to wage inflation, which the Federal Reserve aims to keep below 2%.
• 📈 The labor market is reported as strong, but the speaker's personal observations and anecdotes suggest a weakening job market with friends facing unemployment.
• ⏳ The market is slightly more optimistic about a potential interest rate cut in July, with the odds increasing from 26% to 29% after the inflation report.

Q & A

What was the significance of the CPI inflation report released today?

The CPI inflation report released today is significant because it influences whether the Federal Reserve will consider cutting interest rates in June. The report did not show the phenomenal improvement needed for a rate cut in June, leading to a decrease in the odds of such a cut happening.

What is the current odds of the Federal Reserve cutting interest rates in June according to the CME FedWatch tool?

The current odds of the Federal Reserve cutting interest rates in June, as per the CME FedWatch tool, have fallen to 3.1%.

What was the reported headline inflation rate in the CPI report?

The reported headline inflation rate in the CPI report was 3.4%, which is slightly better than the previous rate of 3.5%.

How has core inflation, which excludes food and energy, changed in the latest CPI report?

Core inflation has improved from 3.8% in the prior month to 3.6% in the latest CPI report.

Why does the progress in reducing core inflation to the Federal Reserve's target of 2% seem slow?

The progress is considered slow because it has taken 8 months for core inflation to fall by only half a percent, indicating it will take longer than 2 years to reach the target.

What is the speaker's overall rating of the CPI report?

The speaker rates the CPI report as a three out of five stars, stating it is not terrible but also not a great report.

How did energy prices change year-over-year according to the CPI report?

Energy prices have increased by 2.6% year-over-year, which is an acceleration from the previous month's 2.1%.

What is the reported year-over-year increase in food prices?

The reported year-over-year increase in food prices is 2.2%, which has remained consistent for a few months.

Why might the reported food price inflation be questioned?

The reported food price inflation might be questioned because the government changes the way it calculates inflation, which can affect the reported numbers. For instance, items like cans of ground coffee were removed from the calculation.

What is the current state of shelter inflation according to the CPI report?

Shelter inflation has decreased from 5.7% to 5.5%, but this figure does not reflect true market prices due to the inclusion of old leases in the calculation.

What is the current situation with services inflation and how does it relate to wage inflation?

Services inflation has slightly decreased from 5.4% to 5.3%. However, it remains a concern because it is associated with wage inflation, which the Federal Reserve aims to keep below 2% to align with their target.

What are the current odds of the Federal Reserve cutting interest rates in July and September?

After the inflation report, there is a 29% chance of the Federal Reserve cutting interest rates in July and a 70% chance by September. However, the speaker advises not to take these odds too seriously for the September meeting due to its distance in time.