To The Moon

I was stumped momentarily when I came across this topic.

Off-the-cuff, it should be “easy-peasy” to write for “veteran-investor” readers.

However, assuming there are newbies reading my post, I need to rethink how to cater the post to a different crowd, at the same time hold onto experienced-readers attention as well.

Hope I manage.

Let’s start from the very beginning.

Latest US CPI categories by Weight

The Consumer Price Index (CPI) is compiled and published by US Bureau of Labour Statistics (BLS).

It measures monthly change in prices paid by consumers (like you and I), in the form of weighted average of prices for a basket of goods & services, representing what consumers spend.

It measures the monthly change in prices paid by consumers, in the form of weighted average of prices for a basket of goods & services that represents what consumers spend.

Above please find the 8 categories’ prices and its corresponding revised weightage (latest as of Mar 2023) that would be referenced during monthly CPI calculation.

**Note : might reference the category later on in the post. hence the breakdown.

To arrive at an “educated” guess-timation of April 2023 CPI readings, I will be cross referencing materials currently available before drawing a conclusion.

(1) US Mar 2023 CPI index

US - March 2023 CPI index

• US march 2023 “all items” CPI came in at 5.0% down 1% from february’s reading of 6%.

• “All items less food & energy” came in at 5.6% up 0.1% from february’s 5.5%. This is an “abnormally”. If you refer to historic data, this index readings are usually “lower” than “all item”.

(2) Personal Consumption Expenditure (PCE)

• The Personal Consumption Expenditures (PCE) index shows how consumers collectively spend their money.

• When tracked monthly, it is an indicates the overall health of US economy. It also is a key component of the PCE Price Index, which tracks inflation or deflation in consumer prices over time.

• PCE Price Index (core version) is the preferred data referenced by the Fed to determine inflation and overall US economic stability.

• For march 2023, PCE came in at 4.2%, down 0.9% from february 2023’s 5.1%.

(3) Latest Official Data / Reports.

(a). ADP National Employment.

US ADP employment - May 2023

• ADP National Employment report, released ahead of US national non-farm payroll, is a measure of the monthly change in private employment, based on the payroll data of approx. 400,000 US business clients.

• To date, its data has proven to be accurate and a good predictor of the government's Non-Farm Payroll (NFP) report.

• For its May 2023 data, employment has actually risen to 296,000 jobs up by 154,000 job (+108.45%) from April’s 142,000 jobs.

• What it means is that the labour market is still very tight and not something that the Fed will take “kindly” to in their quest to bring inflation back to targetted 2%.

(b) US Jobs Opening and Labour Turnover surveys (JOLTs)

US - JOLTs for May 2023

JOLTS reports (i) how many job openings for each month, (ii) how many workers were hired, (iii) how many quit their jobs, (iv) how many were laid off and (v) how many experienced other separations (which includes worker deaths).

**Note : On Wed, 8 Mar 2023 Mr Powell had confirmed with the Senate Banking Committee that the JOLTS report is a Critical data point the Fed examines during FOMC meeting before deciding on an interest hike.

• For May 2023, JOLTs came in at 9.59 Millions, that is -384,000 jobs less (-3.85%) compared to previous month of 9.974 Million jobs.

• This is the “lowest” jobs opening for the past one year.

(c) US Weekly Jobless Claims

US weekly jobless claims for week ending

• Jobless claims for week ending 04 May 2023 came in at 242,000 claims, higher than the forecast of 240,000 and an increased of +13,000 claims (+5.68%) from previous week’s 229,000 claims.

(d) US Non-Farm Payroll

US - 05 May 2023 Non farm payroll

• US latest non-farm payroll dated 05 May 2023 came in at 253,000 jobs. This is an increase of +88,000 job (+53.33%) from previous month of 165,000 jobs.

• It’s rising pattern is similar to ADP employment data report earlier in item #a.

• The latest non-farm payrolls data clearly shows that the US jobs market is strong and continues to trend up in (i) professional and business services (43K), (ii) health care (40K), namely ambulatory services (24K) and (iii) leisure and hospitality (31K), mainly food.

(4) Oil Prices for April 2023

Crude Oil - YTD prices

• There are many oil prices charts that one could refer to.

• Since oil prices do not fluctuate too much from chart to chart, I have selected Crude Oil chart as my reference - for simplicity to quantify April 2023 prices.

• Overall, oil prices have fallen for the month of April 2023.

• Cross referencing back to the 8 categories that constitute US CPI index, energy category should be “contributing” a negative effect towards April CPI computation.

My Personal View.

In summary, I expect April 2023 CPI to be slightly lower than the consensus forecast of 5%.

This is because I think the energy component of the CPI will continue to decline due to lower oil prices and seasonal factors.

Referring to the Bureau of Labor Statistics (BLS), the energy index fell -6.4% in March 2023, contributing to the slowdown in headline inflation.

The BLS also reported that gasoline prices dropped -17.4% in March, the largest monthly decrease since November 2008.

I think these trends will persist in April as oil supply remains high and demand weak amid global economic slowdown.

I think core CPI, that excludes food and energy, to moderate slightly in April.

Reason being some of the categories that have been driving core inflation up, eg. (a) shelter, (b) transportation services and (c) medical care services, will face downward pressure due to lower demand.

My final guess-timation is :

• April 2023 CPI to be around 4.8%

• April 2023 Core CPI to be around 5.4%.

Implying inflation continues to trend downwards in April, albeit at a slower pace when compared to March CPI data.

In another words, inflation remains a concern for the US economy.

The upside risks to inflation in the medium term would still be labour shortages (seen from above reports) and fiscal stimulus.

I still think it was “prudent” of the Fed to keep options “open ended” after the supposed “last hike” announced on 03 May 2023.

What’s the point of giving “false” hope (of no more interest hikes or worse interest reduction) when there is no telling what might just hit you across the face out of the blue - right.

• Do you think the CPI index will fall further ?

• Do you think there is a possibility of CPI index rising instead of falling ?

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