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Takeaway: Inflation has just about doubled. Now what?

This is an excerpt from a research note published earlier today by U.S. macro analyst Christian Drake. For more information on our services click here.

Our 1Q14 Macro Investment theme #InflationAccelerating called for ~100 bps increase in reported CPI into the easiest inflation comps in 3Q14.  With inflation running just above 1% into 2013 year-end, a +100 bps increase was effectively a call for a doubling in the rate of price growth.   

In Case You Were Still Worried About Deflation... - inflation 1811026b

With the May reading of +2.13% YoY that doubling of inflation growth has largely manifest.  What hasn’t accelerated, unfortunately, is earnings growth (more on that below).   

Headline CPI accelerated for a 3rd consecutive month in May, hitting its highest rate of growth since October 2012,  while Core CPI accelerated 20bps to +2.0% YoY.

Shelter inflation (~31% weight), which almost singularly supported the headline number most of the last year, accelerated +10bps to +2.9% YoY while protein (meat, poulty, fish, eggs) price growth accelerated another +130 bps sequentially to +7.7% YoY.  

In Case You Were Still Worried About Deflation... - drake1

Notably, while shelter inflation has buttressed the headline number over the TTM and food/energy inflation have been the outliers YTD, the rise in prices has been increasingly broader based the last several months.  

Indeed, the percentage of components registering sequential acceleration made a new multi-year high in May and is looking similar to the commodity price cycle catalyzed acceleration in 2011. 

In Case You Were Still Worried About Deflation... - CPI breadth 061714

In Case You Were Still Worried About Deflation... - CPI all items ex shelter

Christian B. Drake

cdrake@hedgeye.com

@HedgeyeUSA