The Consumer Price Index (CPI) news was the primary economic release this week; allegedly, inflation dropped -0.08% month over month (m/m), and rose +6.42% year over year (y/y). But, while aggregate CPI (black line) fell fairly briskly, services inflation (red line) ticked higher. Services inflation continues to rise.
What categories are pushing services inflation higher? Wolf Street (Source) as usual has a great breakdown. The recent big m/m category increases: motor vehicle repair (+1.0% m/m), hotels/motels (+1.7% m/m), rent/primary residence (+0.8% m/m), video/audio/cable (+0.9% m/m). Some of the y/y moves are also impressive: airline fares (+28.5% y/y), vehicle insurance (+14.2% y/y), vehicle repair (+13.0% y/y).
So, what is that vehicle repair and insurance inflation about? In a previous report, I noted a significant increase in fatal motor vehicle vaxxidents – sorry, I meant accidents – in 2021 (Source). Through Q3, the 2022 increase in fatalities vs. 2020 remains around +12% (and +17% vs 2019). Roughly, that lines up with the “inflation” in insurance and repairs. However, vaxxidents only explain a quarter of the recent large services-inflation moves. Travel appears to be much of the rest. How much of that is the huge rise in workforce disability? No idea.
The CPI release (Thursday, 08:30 Eastern) caused a fair amount of volatility; it took a few days for the trend to become apparent. By end of week, the market concluded the CPI report was positive for risk assets. To my mind, the drop in CPI inflation hints at a pivot, but the increase in services inflation points in the opposite direction. And Powell has talked about services inflation at every Fed meeting.
One big beneficiary of the CPI release was the Euro, which ended 1% higher on the day of release. As a result, the dollar (DX) fell 1.64% on the week to 101.95, breaking down to a new 7-month low. The buck tried to rally last week, failed, and collapsed even further this week, making the new low. DX remains in a strong downtrend.
Gold played the part of the anti-dollar this week, rising 52 [+2.78%] to 1921.70, breaking out to a new 9-month high. Gold is heading for a retest of that 2000 level. Open interest (OI) continues to rise, along with the commercial shorts. Gold/Euros climbed too, up 0.79%, which is a new 5-month closing high – this tells us that gold’s rally is at least somewhat independent of currency moves.
by sagerxx