Core CPI Rises 0.2% In July

In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here.

Labor Pains

The core CPI has risen an at annualized rate of 3.1% in the past three months, which is the slowest pace since March 2021, so consumer inflation is still moderating and will move significantly lower as soon as owners’ equivalent rent and shelter costs cool off in the upcoming months.

The Labor Department announced on Thursday that the Consumer Price Index (CPI) rose 0.2% in July and 3.2% in the past 12 months. The core CPI, excluding food and energy, rose 0.2% in July and 4.7% in the past 12 months.

Right now, the inflation problem is pretty much the cost of living from renting. Owners’ equivalent rent rose 0.49% in July and shelter costs rose 0.4%, which accounted for 90% of the July CPI increase. In the past 12 months, shelter costs have risen 7.7%.

Although owners’ equivalent rent is running cooler than just a few months ago, it rose slightly in July compared to June’s 0.45% increase. Food prices rose 0.2% in July, while energy prices rose 0.1%, even though gasoline prices rose 0.2% and natural gas prices rose 2%.

Eyes on PPI

The big report will be tomorrow’s Producer Price Index (PPI). I’m expecting that the price of goods will continue to fall and might even tip into the negative category. If it isn’t negative, it’s going to be because of higher energy costs on a wholesale level.

Chinese deflation is expected to be exported to the U.S., especially in the Producer Price Index (PPI) due to falling goods prices. China is now experiencing deflation as its economy struggles with declining exports and imports for the past few months. Demand is down, so everything we import from Japan, South Korea, China, and even Vietnam is declining. There is downward pressure on a lot of goods prices right now and that is expected to show up in the PPI report.

The Chinese National Bureau of Statistics on Wednesday announced that consumer prices declined 0.3% in July, while the producer price index declined a much more dramatic 4.4% in July. Deflation is dangerous since it can cause consumers to postpone their purchases. Furthermore, unemployment for people 24 and younger is now at a record high.

The last time there was widespread unemployment among young people, the Tiananmen Square protests and massacre ensued in 1989. The whole world is now onshoring since China proved during Covid-19 to be an unreliable trading partner, so the long-term economic outlook for China is becoming increasingly dire.

Treasury Yield Auction

Meanwhile, the 10-year Treasury yield auction went pretty well yesterday, with yields just dipping slightly. Even though we’re auctioning off over a trillion dollars in Treasury securities this week, it’s going better than expected. I would expect that with the positive inflation report that the 30-year auction would go very well today as well.

There may be some problems brewing on the labor front since the Labor Department on Thursday also reported that weekly unemployment claims surged to 248,000 in the latest week, up from 227,000 in the previous week. This increase caused the four-week average of weekly unemployment claims to rise to 231,000.

Continuing unemployment claims declined to 1.684 million in the latest week, down from 1.692 million in the previous week. The four-week moving average of continuing claims declined by 9,250 to 1.701 million, so that was good news.

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