CPI Smoke and Mirrors
We no longer publish a detailed analysis of CPI data as I believed I was becoming a bit of a hypocrite. On the one hand, since 2020 I have said that CPI data is bogus due to BLS’ use of item rotation and hedonics. So why pay lip service to the BLS’ CPI numbers?
May “Food at Home” was up 0.3% sequentially from April, but I can tell you that at my regional grocery chain (approximately 100 stores), prices popped in May (as they regularly do this time of year), by 10-20 % for core items such as eggs, almond milk, coffee, and cheese to name a few items. These and other food items have moved by double digit percentages year-over-year, every year since 2020. Try buying an item at an auto parts store, consumer electronics retail outlet or a restaurant. If you compare your receipts for “like-for-like” items, you know the price increases are much higher than what the BLS reports and what the Fed tells you.
Speaking of the Fed, I do not believe that Powell & Company have had real rates in positive territory at any point during its “QT” cycle. “QT” it was not. A modest balance sheet runoff while running backdoor QE programs (BTFP, overnight reverse repos, not to mention Yellen’s TGA drawdown), hardly qualifies as a tightening cycle. The Fed has yet to pop the Real Estate bubble it created as the U.S. economy treads water.
The corporate side has also benefited from price inflation. For example, where would Microsoft (MSFT) be without its regular double-digit percentage price increases? I can’t imagine that unit sales are increasing. If MSFT’s Copilot offering was such a hit, MSFT would not have pulled back numbers.
Ditto for Google (GOOGL). Where would it be without its regular double-digit percentage price increases across its subscription offerings?
Microsoft and Google have been emboldened on the price increase front since 2020. Yet, I do not see incremental product value that would justify the price increases.
Oh, Treasury has a healthy 10-year auction today. Who in their right mind is buying U.S. Government paper? Talk about “high yield” paper, that’s putting it kindly.