QUICK QUILL — The rule of thumb goes: the longer the inflation, the longer the duration of the inversion. The record inversion in the yield curve got a kick in the pants from the surprise rise in the March CPI. However, conflicts between the prices of goods and service prices and essentials and discretionary items as well as the contrast of investor optimism and non-investor pessimism suggest the yield curve’s recession prescience is dormant, not dead.
TAKEAWAYS
- On a 6MA basis, durables CPI has been negative since last September and continues to trend downward; however, non-rate sensitive services inflation remains red hot, with Powell’s “supercore” up 6.1% on a 6MA basis in March, its fastest pace since September 2022
- Nondiscretionary CPI accelerated to a 4.7% YoY pace in March, a six-month high and four points north of discretionary CPI’s 0.7% YoY print; inflation on essentials has now been running above normal for 36 straight months and continues to eat into purchasing power
- In the RCM/TIPP Economic Optimism Index’s April data, investors saw optimism rise 8.3% to 54.9 while non-investors grew more pessimistic, falling 8.7% to 36.6; the headline falling for a third month suggests UMich Consumer Expectations are due for a pullback