April CPI rose .4% headline and .2% core, both right in line with expectations but because of rounding, the y/o/y headline gain was 3.2%, .1% more than expected and the highest since Oct ’08. The core y/o/y gain is 1.3%, the most since Feb ’10. Keeping a continued lid on the core was just a .1% rise in Owners Equivalent Rent which I keep believing will start to jump soon as apartment vacancies continue to drop and landlords are gaining pricing power but its obviously not showing up yet in this data. Apparel prices rose .2% but is modest compared to the sharp drops in the previous two months. This area is also another swing factor as retailers are expected to start raising prices, especially for the 2nd half, to deal with their rising cotton costs. Vehicle prices rose .8% for a 2nd straight month, led by a 1.2% rise in used car/truck prices. Commodity prices, making up 40% of the overall figure, rose .8% and .4% ex food and energy. Bottom line, the rise in commodity prices is filtering into consumer prices but the core rate will continue to be the focus of the Fed. The recent commodity decline will give them comfort even though oil in particular going from $72 (since Jackson Hole) to $114 and back to $100 really shouldn’t.
Germany and France carried the load to a better than expected Q1 GDP figure for the entire Euro Zone. Growth was 3.2% annualized vs the consensus of 2.4%. Greece even contributed with a growth rate of 3.2% annualized (still down 4.8% y/o/y) but Portugal officially slipped into recession with its 2nd consecutive quarterly contraction. While overall better than expected, the EU kept its ’11 GDP estimate at 1.6% while raising its inflation forecast to 2.6% from 2.2%. Hong Kong’s economy grew 11.2% annualized in Q1, more than twice expectations. The Shanghai index shrugged off another reserve requirement hike with an almost 1% gain in stocks while the Bank of Korea unexpectedly did not raise rates and kept them at 3%, still well below CPI of over 4% so the pause is likely temporary.