Trend Macrolytics, LLC Donald Luskin, Chief Investment Officer Thomas Demas, Managing Director Michael Warren, Energy Strategist Data Insights: Consumer Price Index, Producer Price Index Thursday, October 11, 2018 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 +2.28% +1.8% +0.7% Core +2.17% +1.8% +1.4% OER +3.3% +3.0% +2.2% All less OER +1.9% +1.1% +0.2% Core less OER +1.6% +1.1% +1.0% Energy +4.8% +3.6% -5.4% All less energy + + +1.3% Food +1.4% +1.1% +0.8% All less food +2.4% +1.9% +0.8% Health care + -0% +1.9% All less health care +2.3% + +0.6% 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 2018 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% CAGR +1.75% CPI ex-energy 5% CAGR +1.38% -5% CPI -15% CAGR -1.96% -25% Energy -35% Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 Jul 17 Jul 18 Source: Bloomberg, TrendMacro calclations 2
World round-up: CPI year-on-year Kyrgyzstan -0.3% Bosnia Herzegovina -2.9% Argentina 33.6% Iran 31.4% Turkey 24.5% Nigeria Egypt 11.2% 14.2% Angola 19.0% Ghana 9.9% Ukraine 9.0% Uruguay 8.3% Zambia 7.9% Tunisia 7.4% Lebanon 6.7% Philippines 6.7% Algeria 6.5% Kazakhstan 6.1% Mongolia 6.0% Bangladesh 5.8% Kenya 5.7% Jordan 5.3% Myanmar 5.2% Barbados 5.1% Pakistan 5.1% Romania 5.1% Nicaragua 5.0% Belarus 5.0% Mexico 4.9% South Africa 4.9% Armenia 4.9% Zimbabwe 4.8% Guatemala 4.6% Nepal 4.6% Brazil 4.5% Honduras 4.4% Namibia 4.4% Sri Lanka 4.3% Fiji 4.3% Abu Dhabi 4.1% Paraguay 4.0% World 3.9% Jamaica 3.9% Domincan Rep. 3.9% U.A.E. 3.8% Uganda 3.7% India 3.7% Estonia 3.7% Bulgaria 3.5% Russia 3.4% Norway 3.4% Hungary 3.4% Macau 3.3% Colombia 3.2% Moldova 3.2% Latvia 3.2% Chile 3.1% Botswana 3.0% Timor-Leste 2.9% Indonesia 2.9% Cambodia 2.9% Slovak Repub. 2.8% Canada 2.8% Iceland 2.7% Georgia 2.7% Azerbaijan 2.7% U.K. 2.7% Serbia 2.6% Czech Repub. 2.5% Malta 2.4% Lithuania 2.4% Belgium 2.4% US 2.4% Hong Kong 2.3% China 2.3% Germany 2.3% Costa Rica 2.2% Saudi Arabia 2.2% Spain 2.2% Austria 2.2% France 2.2% Australia Croatia Euro Region Sweden 2.0% Slovenia 2.0% Luxembourg 2.0% Bahamas 1.9% Bahrain 1.9% S. Korea 1.9% Netherlands 1.9% Bolivia 1.8% Poland 1.8% Taiwan Puerto Rico 1.5% New Zealand 1.5% Italy 1.5% El Salvador 1.4% Bermuda 1.4% Maldives 1.4% Portugal 1.4% Peru 1.3% Thailand 1.3% Japan 1.3% Israel 1.2% Trinidad and Tobago 1.1% Panama 1.1% Oman 1.1% Belize 1.0% Switzerland 1.0% Greece 1.0% Denmark 1.0% Kuwait 0.9% Tajikistan 0.8% Singapore 0.7% Ireland 0.7% Senegal 0.4% Ecuador 0.2% Malaysia 0.2% Venezuela 180.9% -10% -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 2018 Source: Bloomberg, TrendMacro calculations Swap-implied inflation yield curve, per annum 2.5% 2.4% 2.3% 2.2% Sep 2018 2.0% 1.9% Aug 2018 Sep 2017 1.8% Source: Cleveland Fed, TrendMacro calculations 4
Apparel -0.6% -4.2% -3.9% -5.4% -1.0% -1.8% All items 2.3% 1.8% 0.7% Food 1.4% 1.1% 0.8% Housing 2.8% 2.5% 0.9% Transportation 3.7% 3.6% Medical care 1.9% Recreation 0.2% 3.8% Ed and comm 1.3% 2.2% Other 2.2% 0.6% Commodities 1.4% 0.5% Services 2.8% 2.6% 2.2% All less food 2.4% 1.9% 0.8% All less shelter 1.8% 1.2% 0.1% All less medical 2.3% 0.6% Energy 4.8% 3.6% All less energy 1.3% Core 2.2% 1.8% 1.4% OER 3.3% 3.0% 2.2% 11.8% CPI less OER 1.9% 1.1% 0.2% Core less OER 1.6% 1.1% 1.0% 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 260 225 250 240 230 175 220 210 125 200 07 08 09 10 11 12 13 14 15 16 17 18 75 25 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 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 2018 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 = 0.02 +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
None +0.9% US +2.3% +2.2% Europe + Germany +2.2% +1.2% +0.8% Italy +1.6% +0.6% +0.9% France +2.5% Spain +2.3% Greece +1.2% +0.6% +0.7% +0.2% Portugal +1.8% Ireland +0.9% UK +2.5% +1.9% Australia + +1.6% Canada +2.8% +2.3% Japan +1.3% China +2.3% Russia +3.4% India +5.6% Brazil +10.0% 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 +2.7% +0.3% + Core +2.5% +0.7% + Intermediate processed +5.6% -0.2% unch Core +5.0% +3.0% +2.4% Intermediate unprocessed +4.3% -15.0% +12.5% Core -1.8% -23.5% -29.4% Source: BLS Producer Price Index, TrendMacro calculations 7
-1.4% - 0.0% 0.7% 0.3% 0.7% 1.8% 3.1% 2.7% 2.3% 4.5% 4.3% 4.2% 3.6% 5.3% 5.8% 11.6% Foods goods -1.5% -5.1% -7.0% -3.9% -9.2% -0.2% -0.3% Foods goods -0.9% -11.6% -16.7% -15.0% -1.0% -2.4% Foods -5.8% -40.0% -14.7% Core interm unprocessed -1.8% -23.5% -29.4% Final Demand 2.7% 0.3% Goods 3.1% 0.0% Energy goods 9.5% Capital goods 2.9% 1.9% 5.9% Services 2.4% 0.3% 3.1% Transportation 6.1% 6.4% 24.0% Intermediate processed goods 5.6% 0.0% Manufacturing goods 4.9% 1.5% 0.6% Construction goods 5.8% 2.4% Energy goods 11.5% 7.5% Interm services 3.3% 3.1% 6.2% Transportation 4.5% 4.5% 1 Unprocessed goods 4.3% 12.5% Energy 18.5% 19.6% Core final 2.5% 0.7% 76.3% Core interm processed 5.0% 3.0% 2.4% PPI inflation by sector (SAAR) 12-mo 3-mo 1-mo Source: BLS Producer Price Index, TrendMacro calculations The inflation pipeline (SAAR) 12-mo 3-mo 1-mo Stage 1 Stage 2 Stage 3 Stage 4 Finished Consumer Source: BLS Producer Price Index and Consumer Price Index, TrendMacro calculations 8