Inflation Stays the Course
Prior Week Summary
The economic news of the week was all about the inflation landscape, with updates to both consumer and producer prices. The Labor Department reported on Wednesday that wholesale prices rose 0.1% in April, as a decline in the cost of food weighed on the average. The decline in the cost of food was the largest such drop in a year, and reflected weakness in the prices for beef, eggs and vegetables. When controlling for the changes in food and energy prices, producer prices rose 2.3% from this point last year.
On the consumer side of the ledger, the Labor Department reported that consumer prices rose 0.2% in April, after falling 0.1% in March. Excluding the more volatile changes to food and energy costs, prices rose 0.1%, bringing the year-over-year change in consumer prices to 2.1%. The report detailed that prices for used cars fell by the most in nearly ten years, while the cost of airfare fell by the most in four years. When taken together, the gain in consumer and producer inflation in April suggest that price changes are well within the Fed’s outlook, and unlikely to materially change the current path of monetary policy.
As of this writing, the market is pricing in nearly 100% odds of a hike next month at the June FOMC meeting.
The Look Forward
The market will be looking forward to updated information on retail sales, industrial production and the housing market. There is also a very busy calendar of Fed speaking engagements this week, which the market will pay very close attention to for clues on the updated views of voting members of the FOMC.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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