INFLATION REPORT Is WORSE Than YOU THOUGHT...CPI

[00:00:00] Speaker 1: okay here's your cpi bomb blast for today guys they told you inflation was coming down but they were wrong and this morning's number just made it official by the end of this video you'll understand exactly what's in the april cpi report that dropped just this morning why the headline 3.8 is only half the story and why two inflation problems buried inside that number have absolutely nothing to do with each other which means they cannot be solved by the same tool if you're a homeowner a borrower a traveler or anyone who pays rent in america this report is about you so you better pay attention let's get into it the bureau of labor statistics dropped april consumer price index that's the cpi at 8 30 a.m wall street time just a few minutes ago headline 3.8 year over year the highest annual inflation reading guys since may of 2023 the monthly read that was up six tenths of a percent and the consensus across every financial network this morning was swift and predictable it's energy the war the straight strip out energy and it's all just fine well here's the problem with that consensus it is partially true which makes it more dangerous than if it were completely wrong now yes energy was the single largest driver no surprise there the energy index rose 3.8 in april alone over the last 12 months energy is up 17.9 and gasoline is up no surprise 28.4 the energy component accounted for more than 40 of the entire monthly increase the people saying it's an energy story are not really wrong they're just not finished reading the report that's always the case isn't it because there are two other things in this morning's data that tell a completely different story and they have nothing to do with the straight of our moves so guys if you like this type of content please click like and consider subscribing it's important to be in the know we hope that you would do it with us let me walk you through the energy story first because most people think they understand it and most people understand only half of it when energy prices rise the first place most people look is of course the gas pump gasoline is up 28.4 percent year over year and it's a real and direct hit on every american who drives a car that is the visible part the part you feel when you swipe your card at the pump or even if you just drive by the gas station and see the big signs uh out front but energy doesn't stop at the gas pump it doesn't respect the boundary between goods and services and this morning's report showed that in a way that should make every american who has bought an airline ticket recently stop and pay very close attention airline fares are up 20.7 percent year over year 20.7 percent guys if you flew somewhere for 500 last year the same ticket is now going to run you around 600 bucks i did the math for you so you don't have to do it and that's not airline greed guys it is jet fuel when crude oil spikes the cost of flying every passenger on every route in america goes up along with it airlines pass through that cost directly to us every single time every time they have no choice this is what economists call energy pass-through the gas pump is the visible tip the airline ticket the trucking surcharge the higher price at every business that heats cools or ships anything these are the iceberg below the surface energy inflates in every sector that touches it which is to say every sector and the full pass-through from an oil shock of this magnitude guys takes 6 to 12 months to work through the system we're still in the early innings now here is where i need you to lean in a little bit and i'm going to slow it down because this next part of the report is the one that nobody is leading with on financial television right now and i've been watching and it's the one that matters more for your long-term cost of living shelter the shelter index rose six tenths of a percent in april that is the second consecutive monthly increase you could probably see the yellow chart over there behind me on my screen shelter is now up 3.3 percent year over year and i want to be precise about why this is a fundamentally different problem from the energy number because they look similar in a chart but they're not the same animal at all energy prices are volatile they go up with geopolitical conflict and they come back down when conditions change and they will that is why the fed uses core inflation which strips out food and energy which interestingly we all need to buy to survive and get to work anyway but that is a topic for another video well they do it guys to measure underlying pricing pressure without the volatility core cpi this morning came in at 2.8 year over year and four tenths of a percent month over month the feds target is in case you forgot two percent core is running forty percent above target and shelter is a significant reason why shelter doesn't work like energy guys once rent rise well in case you haven't noticed they tend to stay risen owners equivalent rent that's bls's estimate of what a homeowner would charge to rent their own home is the stickiest component in the entire cpi basket and it has been it's been a big problem excuse me it's the number that the fed watches most closely to determine whether inflation is truly cooling or just fluctuating in march shelter rose five tenths of a percent in april shelter rose six tenths of a percent that is two consecutive months of acceleration it's not a blip that's a directional signal and it's happening for a reason that has nothing to do with iran mortgage rates are still above seven percent homeowners with three percent mortgages won't sell because they can't afford to buy something else so they stay put the lot that locks out that locks supply out of the market and people who want to buy can't afford it so they stay renters rental demand stays elevated and rents they keep rising the locked in homeowner problem and the rental demand problem are feeding each other at this point and the fed's rate policy has not resolved either one now here's the structural trap this morning's report reveals and the reason that the new fed chair kevin warsh is walking into one of the hardest monetary policy environments in a generation guys i've been doing this for 35 plus years and i've been watching the fed closely this is a very unique challenge right now you have two inflation problems running simultaneously problem number one is as you might guess energy driven it's volatile it's geopolitically sourced and in theory it's self-correcting if the straight situation resolves ultimately it will resolve itself raising rates does not lower gas prices so the fed waits it out problem number two is well shelter it's structural it's sticky and completely unrelated to oil or iran shelter requires either rates to come down or housing supply to surge and guess what in case you haven't noticed neither is happening quickly tool for fighting problem two lower rates it risks letting problem number one run hotter the tool for managing problem number one staying put makes problem number two worse this is not a comfortable place to stand guys and it's exactly where warsh is standing on his first week on the job with this morning's data as his welcome gift now here is what i want you to watch shelter for a third consecutive monthly increase because if we get three in a row the disinflation narrative needs to be completely rebuilt from the ground up airline fares and core services for continued energy pass-through that's another thing to watch and of course warsh's first press conference for any signal for how he is weighing these two separate problems against each other the tune rate cut that markets were pricing in last week is looking considerably less likely this morning the bond market already knows that you see yields climbing slowly the market wanted to report that it could explain away with one word energy it wished it didn't get one unfortunately it got an energy story with a services problem attached and a shelter story underneath both of them that has nothing to do with energy or iran at all three layers one report zero answers so your truth bomb for this morning is the april cpi is not one inflation problem it's two and the one that'll be here after the strait of hormuz opens is the one that nobody on television is leading with this morning guys join me every day for wall street truth bombs where i drop them right here before the market figures every day the headlines move the markets but the real story is in the shadow data that's why every thursday at 4 30 pm wall street time we go live with the radar report we break down what's actually driving the markets inflation fed policy oil housing credit risks liquidity and the biggest macro stories wall street is watching right now as we speak no spin no narratives no politics just policy just real analysis designed to help you understand the risks the opportunities and what could happen next i'm mark malik founder of truth bombs and this is where we connect the dots before the rest of the market even catches on join us live every thursday 4 30 pm est wall street time for the radar report