There were a couple main economic reports for the week.
Consumers still have cash and are willing to spend it. Retail sales came in at + 0.6% month-over-month in June versus expectations for a fall of -0.4%. Year-over-year growth is running at over +15%, as you can see below.
The other biggie was the consumer price inflation (CPI) number for June. It was up +5.4% year-over-year, above expectations of +4.9%. Core CPI inflation clocked in at +4.5%, surpassing expectations of +4.0%.
However, most of the increase in the CPI continues to be driven by a few pandemic-affected sectors, as you can see below.
Travel and tourism prices continued to normalize as airfares were up 2.7% and prices for lodging away from home increased 7.0%. Lodging prices have now returned close to pre-pandemic levels (chart below); so, the rapid increase in prices associated with post-pandemic rush could now be mostly behind us.
While not directly in the CPI number, it is still notable how much lumber prices are down the last few weeks. After topping out at over $1700, lumber futures crashed below the $600 level at one point this week.
Finally, despite the hot CPI report, inflation expectations have dipped lower. The chart below shows the market’s expectation for inflation starting five years from now for the subsequent five years.
What could get inflation expectations, and presumably bond yields, moving higher again? Rental inflation would do it. Housing via rents is roughly 30% of the CPI index. If they start catching up with rising home prices the inflation data will start to get perky pretty quickly.
Charts We Found Interesting
1. The Delta variant takes hold in the U.K. But the link between infections and hospitalizations/deaths appears to have been broken, at least for now.
2. Emmanuel Macron announced on Monday that a proof of vaccination (or a negative test) would very soon be needed to access public events, restaurants, cinemas, stations & airports… Since then, more than 2.2 million vaccination appointments have been booked in less than 48 hours.
3. A lot of people will lose unemployment benefits over the next few weeks.
4. It’s amazing how the ECB has become the front-runner in bank balance sheet inflation.
5. Speaking of inflation, which prices have gone up and which have gone down since 2000. And why are college textbooks still a thing??
6. California is fast becoming the state of rolling blackouts. The first four months of 2021 had 37% less hydro generation than the first four months of 2020 and 71% less than in 2019! And California’s last nuclear facility will close in 2024 or 2025. It produces almost 10% of the state’s energy.
7. Speaking of hydro-power, Lake Mead’s water level is now at its lowest level since the lake was filled in the 1930s.
8. What’s striking about this chart is that even during past energy transitions (biomass to coal and then coal to oil), we didn’t end up consuming less of the original power source.
9. The FT has something for everyone.
Have a good weekend.
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