Inflation Isn't Going Anywhere

Another Hot CPI

US CPI came in at 3.8% YoY vs. a 3.7% estimate this week. This is the 3rd upside surprise in a row for CPI. For the quarter, ‘super core’ CPI rose at a 7.2% annualized rate (the 3-month annualized rate of change was even faster at 8.2%), this was the 3rd quarter in a row that Powell’s metric has increased, after registering at just 3.1% in Q2 2023.

Energy Costs are Rising

The price of oil is gaining momentum, geopolitical tensions in the Middle East are not helping. Oil is a key input price of many materials and is a leading indicator of expanding inflationary pressures.

Positioning only gives a higher ceiling to rising energy costs. Hedge funds have drastically reduced their exposure to the energy sector and oil since the start of 2023.

A hot CPI, a weak Treasury auction, and rising energy prices all combined made for a weak few days in Treasuries. US 10-year Treasuries had their worst day since May 2023 with yields jumping above 4.5% for the first time since November.