by Scott Martindale
  CEO, Sabrient Systems LLC

This is a brief update to my June post, incorporating today’s Personal Consumption Expenditures (PCE) inflation readings for the month of May.

PCE came in at +4.07% YoY, PPI was up +6.42%, and May CPI came in at +4.17%. As illustrated by the upper chart below, this abrupt surge would be frightening if it were indicative of a structural problem in the global economy. However, we all know this is mostly event-driven due to disruptions to supply chains and the spike in oil, gas, and fertilizer prices from the Iran conflict and blockade of the Strait of Hormuz (with only 2–5 ships/day passing through the strait compared to 70 under normal conditions). As these supply chain pressures have begun to ease, crude oil has fallen from $108/bbl in mid-May to $72/bbl (WTI August futures) today.

So, when you exclude food and energy prices, Core PCE and Core CPI have managed to stay somewhat under control at +3.41% and +2.82%, respectively. Even more encouraging, looking at the lower chart showing 3-month rolling annualized averages, although headline PPI and CPI annualized trends are startlingly high, the core consumer inflation numbers are actually much lower. The annualized 3-month trends show Core PCE of +3.41%, Core CPI +2.82%, and “Trimmed Mean PCE” (new Fed chair Kevin Warsh’s preferred metric) +2.78%.  Click here to read on....