Inflation Data Recap. Economist Reactions
The Bureau of Labor Statistics released the Consumer Price Index for March 2011 this morning. The Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.
Instant View: Consumer prices rise on food and gasoline: (Reuters) - U.S. consumer prices rose as expected in April on higher food and energy prices, but continued to exhibit little sign of a broader pick-up inflation that would trouble the Federal Reserve.
KEY POINTS: The Labor Department said its Consumer Price Index increased 0.4 percent after rising 0.5 percent in March. Economists polled by Reuters had expected a 0.4 percent rise last month. * Core CPI -- excluding food and energy - gained 0.2 percent after edging up 0.1 percent in March and in line with economists' expectations. * The monthly increase in core CPI has been bouncing around 0.1 percent and 0.2 percent since November.
Economist Reactions....
STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE, CALIFORNIA:
"With energy prices 18.6 percent above their year ago level, core consumer prices are 1.3 percent above their year ago level and its trend year-over-year rate has been slowly rising. Strengthening final demands have eliminated any risk of deflation but still ample slack in the economy, ongoing financial deleveraging, fiscal austerity, and increased global uncertainty should help restrain any acceleration in inflation."
DANA SAPORTA, ECONOMIST, CREDIT SUISSE, NEW YORK
"With some of the supply disruptions in the auto industry, the need for automakers to provide incentives has diminished a bit so we might see some upward pressure in the core coming from the auto sector. Core is up for the year. This is not enough to prompt an immediate response from the Federal Reserve but they're certainly watching this. It is still our view that when QE2 ends in June the next move from the Fed will be a tightening move."
JAMES O'SULLIVAN, CHIEF ECONOMIST, MF GLOBAL, NEW YORK
"The real story is that core is edging up. There is a clear acceleration in the core number in recent months. The bottom line is moving back up where the Fed would want to see it. Clearly the core number has moved away from the deflation zone in the last six months. It's just a matter of time when the Fed will tighten. Real hourly earnings have crimped spending real consumer spending, which rose at a 2.7 annualized rate in the first quarter. Higher gasoline prices were offset by a drop in payroll tax. We should get some relief in real spending from lower gasoline prices."
NICHOLAS COLAS, CHIEF MARKET STRATEGIST, THE CONVERGEX GROUP, NEW YORK
"People are happy inflation data is broadly in line with expectations. There's been a lot of concern about what commodity prices were going to do to inflation. This is not a great number but still in line with prior expectations."
DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS
"Before rounding the core rose by 0.1854 percent, a number that can still be seen as acceptably subdued, even if there has been some acceleration even in core CPI from the very low late 2010 levels. Food and energy remain firm but were less so in April, and April should prove a short term peak in energy... This is the 5th straight month that overall CPI has outpaced the core but that string should break in May given a peaking in oil and continued negative seasonal adjustments. The yr/yr headline of 3.2 percent is the highest since October 2008, but the acceleration is probably now close to a short term peak. Fading worries about headline inflation will put focus on the core."
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January 12, 2011: Beige Book: Housing is Weakest Link. Wage Growth Missing. Margin Squeeze Looms
February 1, 2011: Margin Squeeze Concerns Deepen as Manufacturing Sector Expands
February 3, 2011: Productivity Gains Darken Hiring Outlook. How Might that Impact Housing?
February 16, 2011: FOMC Minutes: Harping on High Productivity & Margin Pressures
March 3, 2011: Inflation Expectations Distorted by Bullish Perspectives of Reality
March 17, 2011: Inflation Update: Cost of Living Rising as Wage Growth Lags
April 29, 2011: Economic Slowdown: Transitory Effects vs. False Starts
May 12, 2011: Margin Squeeze Hits Headlines. False Start Baked into Bonds
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Another round of short covering got rates going in the right direction after 830am data was absorbed. 10yr note prices then went sideways for a bit before buyers took over ahead of the Fed's latest QEII open market operation. That coupon pass is still ongoing as I write but TSYs are near their best price levels of the day. +12/32 at 99.17 yielding 3.180%.
3.175% = highly-trafficked pivot
Current coupon MBS prices followed benchmarks higher into the short covering supported rally, albeit at a lagging distance. We're just off intraday price highs. The FNCL 4.5 is +9/32 at 103-08 and the FNCL 4.0 is +10/32 at 100-07. The TBA market feels thinly attended on this pollen-filled Friday.
BIG PICTURE MARKET UPDATE: Margin Squeeze Hits Headlines. False Start Baked into Bonds