PrefBlog

How ’bout that US inflation number, eh?

The Consumer Price Index rose 9.1 percent from a year ago, a 40-year high that defied expectations of moderating price pressures. Food, rent and gasoline were among the categories that recorded the biggest increases, further squeezing Americans’ budgets.
…
The report contained unwelcome news beyond the headline number. A core inflation index that strips out food and fuel prices — giving a sense of underlying inflation trends — remains high and came in faster than economists expected. The core index climbed 5.9 percent the year through June, barely a slowdown from 6 percent in the previous report. The core measure actually climbed 0.7 percent from May to June, more than the previous monthly increase and bad news for central bankers.

Underlying inflation, as estimated by the New York Fed, a little less severe:

• The UIG “full data set” measure for June is currently estimated at 4.8%, a 0.1 percentage point decrease from the current estimate of the previous month.
• The “prices-only” measure for June is currently estimated at 6.0%, a 0.1 percentage point increase from the current estimate for the previous month.
• The twelve-month change in the June CPI was +9.1%, a 0.5 percentage point increase from the previous month.
  • -For June 2022, trend CPI inflation is estimated to be in the 4.8% to 6.0% range, a slightly wider range than May, with its lower bound 0.1 percentage point lower and its upper bound 0.1 percentage point higher.

The day was enlivened by a ‘shock and awe’ BoC policy rate hike of 100bp, which didn’t affect the market so much as 75bp has been considered a certainty for some time. The preferred share market decided it was shocked by the news, but got used to it as the day wore on:

The net result was a loss of 33bp on the day.

PerpetualDiscounts now yield 6.09%, equivalent to 7.92% interest at the standard equivalency factor of 1.3x. Long corporates now yield 5.23%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) remains at 270bp, the same as reported July 6.

This entry was posted on Wednesday, July 13th, 2022 at 8:31 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.