Economic data

July CPI rose .5% m/o/m headline (est was up .2%), the most since June ’09 and the y/o/y gain is now 3.6%, matching the highest since Oct ’08. Ex food and fuel saw a .2% m/o/m gain and a 1.8% y/o/y rise, both in line with forecasts. The absolute CPI index, aka the cost of living, is again at another record high. Energy prices rose 2.8% after a 4.4% decline in June and food prices rose .4%. Owners Equivalent Rent, 25% of CPI, rose .3%, the biggest gain since Nov ’08 and is a major problem for the Fed as landlords gain pricing power as the home ownership rate declines and vacancies fall. Apparel prices rose 1.2% and it’s the 3rd month in a row of 1%+ gains. Used car prices rose .7% but new car prices were flat. While markets and the Fed are betting on a fall in inflation readings over the next year as measured by the implied inflation rate in the TIPS and comments from the Fed, the data is proving more sticky than thought. To humanize the 3.6% y/o/y inflation reading, the average saver is getting less than .5% on a bank account, thus in real terms, savings of the savers are getting confiscated everyday by the Fed and for the average worker, wages and salaries as of June are up 3.4% y/o/y, thus running in place. With this week’s inflation data as a backdrop and as we look to Jackson Hole next week, some think Bernanke is going to announce something more but we already got quasi QE3 on Aug 9th in the face of 3 dissenters so don’t expect anything.

Initial Jobless Claims totaled 408k, 8k higher than expected and last week was revised up by 4k to 399k. The 4 week average did fall however to 403k from 406k, the lowest since mid April. Continuing Claims rose by 7k and were just a touch above estimates. Extended Benefits fell by a net 44k. Bottom line, encouragingly the pace of firings are moderating to near the lowest since summer of ’08 but the level of hiring’s of course remain still at a sluggish pace and well below what is needed to put a real dent in the unemployment rate.

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