QUICK QUILL — Persistent overestimation of core inflation has coincided with Fed tightening cycles in the past. At present, the five-month strength of core misses has further misled Fed officials committing a policy error as they pause on the easing front. To that end, short-run underlying core inflation trends point to more disinflation compounded by a travel recession dragging on services pricing. We foresee more downside for the leisure travel space.
TAKEAWAYS
- The Street has over-estimated the MoM change in core CPI for five months running, a streak with only three other precedents: August 2005, September 2005, and July 2017; unlike these cycles which featured a tightening campaign, tariff tentativeness has left the Fed frozen
- NY Fed Current Prices Received came in at 25.7 in July vs. the 9.4 long-run average, while Future Prices received, at 42.2, nearly doubled the 22.1 norm; the New Orders-Inventories spread sank to -13.6, with Inventories’ 15.6 the strongest gauge in the NY Fed’s release
- On a 5MA basis, supercore eased to 1.1% in June, a cycle low and beneath levels seen prior to the pandemic; meanwhile, Airfares, Ship Fares, and Hotel Rates were all below -3% YoY in June, a synchronous result only otherwise seen during NBER-dated recessions