Core CPI excludes the volatile food and energy component. We’ve heard that expression countless times. It’s intended to calm everybody down — inflation isn’t as bad as it seems if we back out rapidly rising prices in food and energy.
The BLS is even conditioned to explain the monthly data in the same way every month. From this morning’s report:
Increases in the indexes for gasoline and shelter were the major factors in the seasonally adjusted all items monthly increase. The energy index rose in July as the gasoline and electricity indexes increased…
BLS’ underlying data shows a 2.5% MoM increase in gasoline prices and a 3.3% decline YoY. But, does this look like rapidly rising energy prices? Inflation has been ticking higher even though the trend is clearly to the downside.
As we can clearly see, Core CPI has been outpacing CPI that includes food and energy ever since Nov 2018 — the result of an administration trying desperately to keep inflation, and thus interest rates, low enough to keep the bull market going (at least until election day.)
The 2s10s plunged on the news to .0329 — the lowest level since Jun 2007. And, the futures are struggling with the realization that a rate cut is going to be difficult to justify with inflation that exceeds the long-held target.
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