Claims disappoint, CPI benign headline, not so core

Initial Jobless Claims totaled a disappointing 386k, 11k more than expected and up from a revised 380k last week. It brings the 4 week average to 382k from 378k, the highest since late April. Continuing Claims did fall by 33k and Extended Benefits fell a net 135k. While some people receiving these extended benefits likely found jobs, many saw benefits expire. Bottom line, for a 9th straight week, initial claims are above 370k, ending the downward trend that we’ve been seeing over the past few yrs and points to a still lame labor market.

Elsewhere, May CPI fell .3% headline but rose .2% ex f&f, both about in line with estimates. The y/o/y gain of 1.7% is down from 2.3% in April and the slowest rate of gain since Jan ’11 led by the drop in energy prices. The core rate though rose 2.3% y/o/y, matching the fastest pace since Sept ’08. While rent of primary residence rose .2% as landlords continue to gain pricing power, Owners Equivalent rent (24% of CPI), the weird CPI question of asking homeowners what they THINK they can get for renting their house, only rose .1%. Bottom line, the decline in energy prices has certainly eased inflation pressures but underlying inflation as measured by the core still remains sticky. From the Fed’s perspective, they’ve now decided that the PCE price deflator is their preferred measure of inflation, thus making the CPI less of an influence in their decision making. I guess they didn’t like 15 months in a row above 2% in CPI up until May.

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