Trend Macrolytics, LLC Donald Luskin, Chief Investment Officer Thomas Demas, Managing Director Michael Warren, Energy Strategist Data Insights: Consumer Price Index, Producer Price Index Friday, July 14, 2017 Today's CPI data: what you need to know 12-mo YOY 3-mo ann 1-mo ann 12 / 3/ 1-mo 12-mo YOY history All items +1.63% +0.1% -0.3% Core +1.7% +1.0% +1.4% OER +3.2% +2.9% +3.5% All less OER +1.5% -0.3% -0.8% Core less OER +0.9% +0.0% +0.3% Energy +2.4% -12.0% -17.1% All less energy +1.6% +1.0% + Food +0.9% +1.2% -0.4% All less food +1.8% -0.1% -0.2% Health care +2.7% +0.8% +4.5% All less health care +1.6% -0.0% -0.7% Source: BLS Consumer Price Index, TrendMacro calculations For more information contact us: Donald Luskin: 312 273 6766 don@trendmacro.com Thomas Demas: 704 552 3625 tdemas@trendmacro.com Copyright 2017 Trend Macrolytics LLC. All rights reserved. This document is not to be forwarded to individuals or organizations not authorized by Trend Macrolytics LLC to receive it. For information purposes only; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources deemed to be reliable, but no warranty is made as to accuracy.
The deflation delusion: it's all about oil, and always has been Cumulative growth of CPI from July 2008, the all-time high oil price 15% CPI ex-energy CAGR +1.71% 5% CAGR +1.20% -5% CPI -15% CAGR -3.64% -25% Energy -35% Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Source: Bloomberg, TrendMacro calclations 2
World round-up: CPI year-on-year Thailand -0.10% Ireland -0.40% Saudi Arabia -0.70% Nigeria 16.30% Ukraine 15.60% Azerbaijan 13.80% Ghana 12.10% Iran 11.00% Turkey 10.90% Kenya 9.20% Kazakhstan 7.50% Moldova 7.30% Georgia 7.10% Zambia 6.80% Belarus 6.50% Mexico 6.30% Algeria 6.30% Myanmar 6.30% Namibia 6.10% Sri Lanka 6.10% Bangladesh 5.50% South Africa 5.40% Uruguay 5.30% Tunisia 4.80% Maldives 4.60% Jamaica 4.60% Russia 4.40% Indonesia 4.40% Guatemala 4.40% Lebanon 4.30% Cambodia 4.20% Colombia 4.00% Pakistan 3.90% Malaysia 3.90% Honduras 3.70% Mongolia 3.70% Jordan 3.70% Lithuania 3.60% Serbia 3.60% World 3.60% Botswana 3.50% Nepal 3.40% Barbados 3.20% Nicaragua 3.10% Brazil 3.00% Latvia 3.00% Estonia 2.90% U.K. Paraguay 2.90% 2.90% Philippines 2.80% Peru 2.70% Kuwait 2.70% Dominican Rep. 2.60% Fiji 2.50% Bermuda 2.40% Czech Repub. 2.30% Puerto Rico 2.30% Bosnia Herzegovina 2.20% Bahamas 2.20% New Zealand 2.20% Australia 2.10% Hong Kong 2.00% Bulgaria 1.90% Hungary 1.90% Norway 1.90% S. Korea 1.90% Austria 1.90% U.A.E. 1.90% Bolivia 1.80% Trinidad and Tobago 1.80% Costa Rica 1.80% Sweden 1.70% Chile 1.70% U.S. 1.63% Belgium 1.60% Germany 1.60% India 1.50% Spain 1.50% Poland 1.50% Iceland 1.50% Luxembourg 1.50% China 1.50% Senegal 1.40% Singapore 1.40% Euro Region 1.30% Canada 1.30% Italy 1.20% Armenia 1.10% Croatia 1.10% Netherlands 1.10% Slovak Repub. 1.10% Greece 1.00% Malta 1.00% Taiwan 1.00% Macau 1.00% Portugal 0.90% El Salvador 0.90% Slovenia 0.90% Kyrgyzstan 0.90% Oman 0.90% Romania 0.90% Qatar 0.80% Israel 0.80% Panama 0.70% France 0.70% Bahrain 0.70% Tajikistan 0.70% Zimbabwe 0.70% Belize 0.70% Denmark 0.60% Japan 0.40% Morocco 0.30% Switzerland 0.20% Ecuador 0.20% Angola 34.10% Venezuela 180.90% Egypt 29.80% Argentina 21.90% -5% 0% 5% 10% 15% 20% 25% 75% 125% 175% Source: Bloomberg, TrendMacro calclations 3
1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years 11 years 12 years 13 years 14 years 15 years 16 years 17 years 18 years 19 years 20 years 21 years 22 years 23 years 24 years 25 years 26 years 27 years 28 years 29 years 30 years Implied 5-year inflation, 5 years forward TIPS Swaps U. Michigan Survey 3% 2% 1% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bloomberg, TrendMacro calculations Swap-implied inflation yield curve, per annum 2.1% Jul 2017 1.9% 1.7% Jul 2016 1.5% 1.3% Jun 2017 0.9% Source: Cleveland Fed, TrendMacro calculations 4
-17.1% Apparel -0.7% -4.9% -1.3% -7.5% -7.7% -0.7% -0.9% Ed and comm -2.4% -1.2% -12.0% -0.3% -0.4% Commodities 0.0% -3.5% -3.8% -0.1% -0.2% -1.4% -1.8% 0.0% -0.7% -0.3% -0.8% All items 1.6% 0.1% Food 0.9% 1.2% Housing 3.0% 2.7% 1.5% Transportation 0.5% Medical care 2.7% 0.8% 4.5% Recreation 0.8% 0.2% Other 2.4% 4.7% 2.1% Services 2.6% 2.2% 1.9% All less food 1.8% All less shelter 0.8% All less medical 1.6% Energy 2.4% All less energy 1.6% 1.0% Core 1.7% 1.0% 1.4% OER 3.2% 2.9% 3.5% CPI less OER 1.5% Core less OER 0.9% 0.0% 0.3% US CPI inflation by sector (SAAR) 12-month 3-month 1-month Source: BLS Consumer Price Index, TrendMacro calculations US CPI Core Level 20-year trend Recession 260 225 250 240 230 175 220 210 200 07 08 09 10 11 12 13 14 15 16 17 125 75 25 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Source: BLS Consumer Price Index, TrendMacro calculations 5
YOY CPI inflation Housing leads US CPI Year-over-year change Case Shiller 20-city avg Owner's equivalent rent CPI component, 18-mo lag 20% 5% 15% 10% 4% 5% 3% 0% -5% 2% -10% -15% 1% -20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: BLS, Standard & Poor's Case Shiller, TrendMacro calculations -1% The world is flat: the vanishing Phillips Curve Latest Linear trend: Pre-74 Post-74 All +16% +14% +12% +10% +8% +6% R² = 0.01 +4% R² = 0.01 +2% 0-2% R² = 0.15-4% +2% +3% +4% +5% +6% +7% +8% +9% +10% +11% Unemployment rate Source: BLS Consumer Price Index, Current Population Survey 6
Brazil -0.8% -0.1% -0.2% US +1.6% +1.7% Europe +1.3% + Germany +1.5% + France +0.8% +0.5% Italy +1.2% +0.9% Spain +1.6% + Greece +1.5% +0.8% Ireland None Japan +0.4% Portugal +1.7% +1.5% UK +2.9% +2.5% Australia +2.1% +1.5% Canada +1.3% +1.4% China +1.5% India + Russia +4.4% Major economies CPI, year on year Headline Ex-food and energy Source: Respective Statistical agencies, TrendMacro calculations PPI data: what you need to know 12-mo YOY 3-mo ann 1-mo ann 12 / 3/ 1-mo 13-mo YOY history Final demand +2.0% +2.5% + Core +1.9% +3.3% + Intermediate processed +3.8% +1.9% -1.9% Core +3.4% +2.1% -1.8% Intermediate unprocessed +6.3% +12.8% +19.9% Core +9.0% -3.3% +5.3% Source: BLS Producer Price Index, TrendMacro calculations 7
-0.3% 0.1% 0.7% 2.2% 2.0% 1.6% 2.8% 2.5% 3.3% 3.3% 3.3% 3.2% 4.6% 4.4% 4.4% 6.0% 6.9% -10.6% -6.1% -1.9% -1.3% -1.8% -3.3% Final Demand 2.0% 2.5% Goods 2.2% 0.0% Foods goods 1.2% 5.6% 7.4% Energy goods 4.3% Capital goods 3.2% 5.6% 9.8% Services 1.9% 3.6% 2.1% Transportation 2.2% 1.0% 1.0% Intermediate processed goods 3.8% 1.9% Manufacturing goods 4.3% 3.4% Construction goods 2.5% 3.1% 1.5% Foods goods 0.4% 10.1% 20.6% Energy goods 6.9% 17.2% 17.8% Interm services 2.9% 6.1% 7.6% Transportation 1.9% 1.3% 0.0% Unprocessed goods 6.3% 12.8% 19.9% Foods 0.9% 10.6% 6.4% Energy 12.5% 33.2% Core final 1.9% 3.3% 51.9% Core interm processed 3.4% 2.1% Core interm unprocessed 9.0% 5.3% PPI inflation by sector (SAAR) 12-month 3-month 1-month Source: BLS Producer Price Index, TrendMacro calculations The inflation pipeline (SAAR) 12-month 3-month 1-month Stage 1 Stage 2 Stage 3 Stage 4 Finished Consumer Source: BLS Producer Price Index and Consumer Price Index, TrendMacro calculations 8