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.
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.
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.
Christian B. Drake