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Peter Boockvar: Read Beyond CPI, Inflationary Internals Heating Up

Mauldin Economics  ( Original )
MAR 15, 2018

Do you trust studies, funded by drug companies, that indicate their drugs are safe? Perdue Pharma funded studies that “proved” that Oxycontin wasn’t addictive. The first question to ask when someone is trying to sell you on supposedly impartial data is “How does this party benefit from this conclusion?”

Most investors fail to perform this most basic critical thinking exercise when dealing with the government inflation numbers. They act as if the headline number is somehow objective. It’s not. It’s massaged nine ways to Sunday to reinforce the idea that inflation is subdued, under control, not a problem. Don’t believe it for a moment.

The core rate was up by .2% as expected but taking out food, energy and trade saw a 4 tenths jump, double the estimate and after a similar gain in January. On the latter, the y/o/y gain is now 2.7%, the highest in at least 4 years when they started to calculate this figure.

Headline PPI was up 2.8% and is up 2%+ for 12 in the last 13 months. Inflation is clearly rising with it more pronounced at the wholesale level. If yesterday’s NFIB report is any indication, companies seem ready to start passing that on.

Bottom line, the higher inflation story is intact which comes after a 2.2% headline and 1.8% core CPI print yesterday (3 month annualized rate is running above 3%). Inflation breakevens are not moving though as PPI typically is not market moving.

The 10 yr yield is not moving either but the 2 yr yield is at a fresh 9½ yr high at 2.28% and the 2s/10s spread is narrowing by 2 bps to the tightest since the last day of January.

ORIGINAL SOURCE: What is up?/Inflation by Peter Boockvar at Mauldin Economics on 3/14/18