Treasuries Commentary - 1/17/2023
We did an in-depth de-composition of last week’s CPI report available via this chart-pack. As detailed in yesterday’s Top Things to Watch, CPI deflated by -0.1% month-to-month. Food continues to be sticky at 10.4% Y/Y but is slowing for the 4th month in a row. Interestingly, Y/Y food prices measured by the World Bank are down to +6.3% Y/Y with fertilizer prices in outright deflation at -8.9% Y/Y. Deflation in food comes on the heels of worrisome scenarios in and around high gas prices in Europe and what could have resulted in more shut-ins of fertilizer production. Among deflationary leaders, fuel oil was down 16.6% M/M, gasoline down 12.50% M/M, and airfares down 8.20%. More importantly, energy is running up against steep comparisons as high as 41.5% on a yearly basis in June. Overall, energy’s contribution to headline CPI has slowed from 3.27% back in June to 0.55% in December (energy weighting of 7.8% in CPI.) Not to forget, however, we’ve extensively written about the China reopening with upside risks to oil demand globally as Atlanta GDP remains strong at 4.1%. Further inflation deceleration was also seen in new and used vehicles with used cars moving into further deflation at -8.8% Y/Y (down from -3.3% in Nov.) While these are encouraging trends from goods to services, housing continues to accelerate on a lag to new rents rolling over. With mortgage originations slowing as reported by banks across the board, shelter will also find its way down as we move forward. Are we in a battle of secular trends vs. a waning fiscal/monetary shock?