Inflation Threat “Starts With The Fed” – President Biden Comments On Hotter Than Expected CPI

May 15, 2022

Update (1010ET): Having deflected any blame for the soaring costs of living in America, President Biden has issued a statement this morning on the hotter than expected consumer price inflation in April:

While it is heartening to see that annual inflation moderated in April, the fact remains that inflation is unacceptably high. As I said yesterday, inflation is a challenge for families across the country and bringing it down is my top economic priority.

This starts with the Federal Reserve, which plays a primary role in fighting inflation in our country. I thank the Senate for confirming Dr. Lisa Cook to the Board of Governors last night, and urge the Senate to confirm my remaining nominees without delay. While I will never interfere with the Fed’s independence, I believe we have built a strong economy and a strong labor market, and I agree with what Chairman Powell said last week that the number one threat to that strength – is inflation. I am confident the Fed will do its job with that in mind.

Beyond the Fed, my inflation plan is focused on lowering the costs that families face and lowering the federal deficit. Already this week, my Administration has announced new steps in partnership with the private sector to lower the price of high speed internet for tens of millions of Americans. And, the Congressional Budget Office reported that the federal budget deficit in the first seven months of this fiscal year fell by $1.5 trillion—putting us on track for the most deficit reduction in any year on record. The CBO also confirmed that the budget deficit so far this year is lower than it was during the same period in 2019, before the pandemic began. Today, I am traveling to Illinois to speak with farmers about more we can do to lower their costs and help them produce more, lowering the price of food for Americans and around the world. All of this is progress, but the fight against global supply chain issues related to the pandemic and Putin’s price hike will continue every day.

Congressional Republicans talk about inflation, but their only plan is to raise taxes on working families, taking even more money out of their pockets. If they are serious about inflation, they should send me the bipartisan innovation bill to bolster our supply chains and make more in America, along with legislation that cuts costs and the cuts the deficit, reducing families’ prescription drug and utility bills and restoring fairness to our tax code. We’ve made enormous progress in getting our economy back on track, and these measures would help us sustain this progress and bring prices down for families.

So it’s The Fed’s problem, Republicans are worse, and Democrats’ inflation plan is brilliant?

* * *

After March’s surge in consumer prices, analysts’ consensus is that CPI has peaked and April was expected to show a big slowing from +8.5% YoY to +8.1% YoY, however, CPI printed hotter than expected at +8.3% YoY…

Source: Bloomberg

Bear in mind that headline CPI is still at its second highest since 1982.

Core CPI was expected to rise 6.0% YoY in April (down from +6.5% YoY in March) but rose a hotter than expected 6.2% YoY and the 0.6% MoM spike in core is bigger than all 67 estimates in BBG business survey.

Energy inflation eased as Services prices soared MoM…

Source: Bloomberg

Increases in the indexes for shelter, food, airline fares, and new vehicles were the largest contributors to the seasonally adjusted all items increase. The indexes for medical care, recreation, and household furnishings and operations also increased in April.

Here are some of the stunning, record price increases, first on a Y/Y basis:

The food at home index rose 10.8 percent over the last 12 months, the largest 12-month increase since the period ending November 1980.
The index for meats, poultry, fish, and eggs increased 14.3 percent over the last year, the largest 12-month increase since the period ending May 1979
The index for airline fares continued to rise sharply, increasing 18.6 percent in April, the largest 1 month increase since the inception of the series in 1963.

And monthly:

The food index rose 0.9 percent over the month as the food at home index rose 1.0 percent. The energy index declined in April after rising in recent months. The index for gasoline fell 6.1 percent over the month, offsetting increases in the indexes for natural gas and electricity.
The index for new vehicles increased 1.1 percent in April after rising 0.2 percent in March. The medical care index increased 0.4 percent in April.
The index for hospital services rose 0.5 percent over the month, the index for physicians’ services rose 0.2 percent, and the index for prescription drugs was unchanged.
The index for household furnishings and operations continued to increase, rising 0.4 percent in April after increasing 1.0 percent the prior month.
The index for motor vehicle insurance increased 0.8 percent in April.
Also rising over the month were the indexes for personal care (+0.4 percent), education (+0.2 percent), alcoholic beverages (+0.4 percent), and tobacco (+0.4 percent).

but, a few major component indexes declined in April.

The apparel index fell 0.8 percent over the month, ending a string of six consecutive increases.
The index for communication fell 0.4 percent in April, its third consecutive monthly decline.
The index for used cars and trucks also fell 0.4 percent over the month, its third straight decline after a long series of increases.

A full breakdown, YoY…

And M/M:

The cost of putting a roof over your head is soaring:

April Shelter inflation rose 5.14% Y/Y, up from 5.00% in March and the highest since March 1991
April Rent inflation rose 4.82%, up from 4.44% in March, and the highest since Feb 1991

Away from housing, it is also interesting to observe what’s going on with food away from home, i.e, restaurants. Inflation in the “full-service meals and snacks” category – meals you pay for after you eat – is surging. But the “limited-service” category, which captures meals you pay for before you eat, has been rolling over for several months now. As Bloomberg notes, usually these two move in tandem, so it will be interesting to see if this divergence can be maintained.

That said, and as Goldman warned, strong Services inflation will likely keep CPI elevated while last year’s spike in goods prices will increasingly drop out…

Source: Bloomberg

Finally, perhaps most worrying for the average Joe, ‘real’ wages fell for the 13th straight month…

Source: Bloomberg

Matt Maley, chief market strategist for Miller Tabak + Co., says:

“Very simply, this high inflation number has dimmed the hopes for many investors considerably that we’ve reached peak inflation. Therefore, the Fed will remain hawkish and it just might put a 75 basis point hike back on the table.”

Looking ahead there is good news and bad news, from Katherine Judge at CIBC:

“Looking beyond April, base effects will help annual inflation continue to decelerate in the near term, but that will be limited by gas prices, which are heading higher again, and supply disruptions resulting from lockdowns in China, in combination with the tightening in the labor market and higher shelter prices.”

And a scary prediction from ex-NY Fed president Bill Dudley speaking on BBG TV: