Friday, June 13, 2008

CPI Rises More Than Estimates, Confidence Still Depressed

- The Consumer Price Index for May rose .6% versus estimates of a .5% gain and a .2% increase in April.

- The CPI Ex Food & Energy for May rose .2% versus estimates of a .2% increase and a .1% gain in April.

- Preliminary Univ. of Mich. Consumer Confidence for June fell to 56.7 versus estimates of 59.0 and 59.8 in May.

BOTTOM LINE: US consumer prices rose more than forecast in May as Americans paid more for fuel, Bloomberg reported. However, core prices remained tame, rising .2%. Energy expenses jumped 4.4% after being unch. the prior month. Gasoline prices rose 5.7% and fuel oil costs soared 10%. Food prices, which account for about a fifth of the CPI, rose .3%, compared with a .9% jump in April. Prices for new vehicles, clothing and prescription drugs all fell in May. The Consumer Price Index is now rising at a 4.2% rate year-over-year, modestly above the 20-year average of 3.1%, but well below the 6.3% rate seen in October 1990 and also below the 4.7% rate seen in September 2005. The Core CPI is rising at a 2.3% rate year-over-year, modestly below the 20-year average of 2.9% and well below the 5.6% rate seen in February 1991 and below the 2.9% rate in September 2006. I still expect inflation gauges to decelerate meaningfully from current levels over the intermediate-term.

Confidence among US consumers fell to the lowest level since 1980 in June, hurt by record gasoline prices, Bloomberg reported. The Expectations component fell to 49 versus 51.1 in May. The Current Conditions component fell to 68.7 from 73.3 the prior month. Consumer Confidence has a strong negative correlation with the price of gas. I still expect confidence to improve dramatically over the intermediate-term as the commodity bubble bursts. The 10-year TIPS spread, a good gauge of inflation expectations, is stable at 2.52% on today’s reports. The 10-year yield is falling 3 basis points and the US Dollar Index is rallying .3% on today’s reports.

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