August CPI came in "hot" as Core CPI came in at +0.30% versus Wall Street expectations for +0.20% and above our +0.16% to +0.18% estimate. The details, however, are better than the surface-level readings.
* The details for August CPI are actually better. The +0.10% MoM is entirely due to two categories:
-- Motor Vehicle insurance surged +2.4% (29% annualized) adding +0.08% to Core
-- Airline fares exploded +4.89% (59% annualized) adding +0.03% to Core
-- combined, these two added +0.11% to Core, or the entire upside surprise
* Vehicle insurance is simply catching up to the surge in auto prices over past few years (replacement cost, etc.) and one wonders, do further hikes slow this? Not really.
These two items also drove the "super core" (aka Core Services ex-shelter) to +0.53% MoM.
-- Motor Vehicle insurance +0.28%
-- Public transportation +0.12%
-- Total +0.40% of the +0.53%
* Does the Fed want to hike further to contain these two items?
* The Fed fund futures pushed hikes into November.
-- September odds now 2.3% -4.50%
-- November odds now 39.3% +4.10%
So the hikes are pushed into November.
* That speaks to it all. There is not enough here to drive a September hike.
* In fact, look at other key market metrics:
-- US 10-yr yields 4.278% ~no change
-- VIX 13.64 -0.59 down
-- Oil flat $89
* So, there is not a whole lot of change in reaction to the CPI report.
BOTTOM LINE: Stocks are sort of stuck now given upcoming tape bombs and FOMC.
The message from the CPI report is that overall inflation is tracking lower but these one-time items highlight that progress is not linear. And there could be some difficulties with seasonal adjustments. Equities are potentially stuck until the FOMC rate decision meeting next week (9/20):
* August PPI is released Thursday at 8:30am ET and this is probably not a positive surprise.
* Thursday evening, 9/14 at near midnight, the UAW is expected to go on strike.
* Investors will probably see how markets react Friday before moving forward.
* Friday is U Mich consumer confidence 1-yr inflation mid-month.
* Next week, Manheim is Tuesday 9/19 <- should be good.
* FOMC rate decision Wed 9/20.
So, there is plenty of fodder ahead for bulls and bears. Equities are flat to slightly up. This is consistent with what we have seen in prior CPI "misses."