
CPI came in hot by .1% on headline and core. The headline was higher due to food coming in hot at .4% vs. .1% last month. In addition, volatile components such as apparel, airline fares, and car rentals were significantly higher. Shelter, however, printed cool at only .2% vs. .5% the prior month which indicates future inflation is likely to decelerate as other more volatile components tend to reverse. Jobless claims spiked to 258k vs. 225k the prior month. The 10-year bond was flat and Fed Fund futures rallied slightly as investors focused on the claims data more than the volatile CPI print.
We continue to believe that inflation is contained with the shelter-adjusted PCE Core well below the Fed’s 2% target. In addition, the money supply, which is the key driver of inflation, is down almost 1% year-over-year, indicating that Fed policy is very tight and likely to continue to cause inflation to moderate. We reiterate our 6,000 target on the S&P with risk mostly to the upside. We expect interest rates to gradually drop into the 3.5% area as global rate cuts continue and central banks are required to inject liquidity into the global capital markets.
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