Services Inflation, and a Flight to Safety

• Fed Balance Sheet (WALCL): -3.8B (-0.05%) w/w.
• Total Bank Credit (TOTBKCR): -5.6B (-0.32%) w/w.  New 15-month low.
• 30 Year Mortgage Rate (MORTGAGE30US); 7.57% (+8 bp) w/w.
• Consumer Price Index (CPIAUCSL): +0.39% m/m; +0.3% expected.
• Services CPI, less Energy (CUSR0000SASLE): +0.57% m/m.  Declining, but still hot.
• Producer Price Index (PPIACO): +0.53% m/m; rebounding past 2 months after 1+ year decline.
• Strategic Petroleum Reserve (WCSSTUS1): -6k, slight drain.

Bank credit continues to contract – horribly deflationary – the 30-year mortgage rate is at 15-year highs, while services inflation remains stubbornly high too.  When do the banks start blowing up?  Perhaps the banks have sold their dreadfully low-yielding loan portfolios to some stupid bond fund manager?  We just don’t know.  I still think banks remain at risk, but that chicken has not yet returned home to roost.

It was an eventful week; most of the big market moves hit on Friday, when crude jumped +5.77%, gold +3.11%, silver +4.26%, miners +4.34%, while the buck just inched higher (+0.06%).   None of Friday’s moves were caused by any events I saw – for example, crude’s big rally started inching higher around 02:00 (2 a.m.) Eastern on Friday, while gold & silver started moving inexorably higher following Thursday’s close.  There was no “event”.  It feels to me as though market sentiment had some sort of change, and/or some “stealthy” accumulation started taking place – perhaps in advance of an “anticipated event?”  I don’t know – I wasn’t invited to the meeting.

The CPI report, released on Thursday, did cause a bit of a fuss.  CPI came in slightly hot (0.39% actual vs 0.3% expected); Wolf Richter has all the charts.

Acceleration of Inflation Continues, Core Services Inflation Spikes despite the Massive Health-Insurance Adjustment (Source – wolfstreet); “Year-over-year, the core services CPI rose by a still red-hot 5.7%, despite the 37.3% collapse of the health insurance CPI within it…”

In his “Section: Services CPI by category”, this stood out to me: Motor Vehicle Insurance: +1.3% m/m (18.9% annualized).  This was the sector with the highest y/y change.