Morning Report: Consumer price inflation decelerates

Posted on June 13, 2023 by Brent Nyitray

Vital Statistics:

Stocks are higher after May inflation came in lower than expected. Bonds and MBS are flat.

Consumer prices rose 0.1% MOM and 4% YOY. Shelter and used cars / trucks were the big contributing factors. Shelter increased 0.8%, however home prices peaked in June of last year so the inflationary push of this component is expected to fade in the coming months.

Jerome Powell has mentioned 3 basic components for inflation – goods, housing, and services ex-housing. The goods issue was driven by supply chain issues in the early days of COVID. That component of inflation is largely finished, and if you look at the ISM reports they pretty much confirm that inventory issues are no longer a problem. The real estate component is likely to fade as the year-over-year comparisons on home prices become much easier.

Finally services ex-real estate are working lower as well. Below is a chart of the CPI with services ex-real estate.

We are still elevated, but the index is falling rapidly. Services ex-real estate is really a proxy for wage inflation. We have seen layoffs in the tech sector, and job openings are working their way lower. Consumer expectations for inflation are decreasing as well.

The Fed Funds futures have moved decisively to a pause forecast for the June FOMC meeting. Certainly the CPI print gives them the leeway to do that. The July futures still see a 60%+ chance for another hike. Before the July meeting, we will get the May PCE inflation reading, and the June CPI / PPI.

Commercial real estate continues to struggle, especially in the office sector. The office sector is reeling from rising interest rates and work-from-home. Manhattan’s official vacancy rate is 17%, and should remain above 20% for the next several years. The unofficial vacancy rate is closer to 50%. Goldman sees continued pain the CRE sector. “There’s no question that the real estate market, and in particular commercial real estate, has come under pressure,” he said in an interview on CNBC’s “Squawk on the Street.” “You’ll see some impairments in the lending that would flow through our wholesale provision” this quarter.

Small Business Optimism increased in May, according to the NFIB. Inflation remains the single biggest problem, although it has eased from its peaks last summer. Job openings are still hard to fill, and average selling prices are increasing overall. Overall optimism still remains historically low:

Filed under: Economy |

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14 Responses

  2. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on June 13, 2023 at 11:54 am said:

    It just occurred to me that if the Burisma dude claims about having Hunter and Joe on tape are true, then the US government has them as well via, at a minimum, the NSA.

    Or had them at one time, anyway.

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  3. jnc4p's avatar
    jnc4p, on June 13, 2023 at 3:59 pm said:

    Brent, I had never heard of an assumable mortgage before this:

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    • Brent Nyitray's avatar
      Brent Nyitray, on June 13, 2023 at 4:02 pm said:

      Most government guaranteed mortgages have a due on sale clause, but VA loans do not.

      If the loan is not guaranteed by the US Government, then I suppose a private lender can put whatever whatever terms they want.

      If I was a builder who needed to improve affordability to sell the house, I would rather give a subsidized mortgage than cut the price of the home in order to keep the comps strong.

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      • jnc4p's avatar
        jnc4p, on June 13, 2023 at 4:13 pm said:

        Article made it sound like it was broader than just the VA:

        “Most U.S. mortgages are not directly assumable. However, a host of popular government-backed mortgages — such as those insured by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture — typically are, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. These loans are frequently used by first-time buyers and account for roughly a quarter of outstanding mortgages, according to Black Knight, a mortgage technology and data provider.”

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        • Brent Nyitray's avatar
          Brent Nyitray, on June 13, 2023 at 7:05 pm said:

          I have never heard of an assumable FHA loan. Usually FHA loans are above-market because they go to people with junky credit.

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        • jnc4p's avatar
          jnc4p, on June 14, 2023 at 10:26 am said:

          Yep, but I suspect above market in 2020 is now below market.

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  4. ScottC's avatar
    ScottC, on June 13, 2023 at 7:12 pm said:

    More on Wuhan and covid from Shellenberger and Taibbi.

    https://public.substack.com/p/first-people-sickened-by-covid-19

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