Apparel Inflation Hits A 67 Year High

Here is an interesting data point that may have been missed in today's noise: the core CPI surprised jumped by 0.349%, barely missing out on a 0.4% print. Had the BLS not revised its seasonal adjustments (which dragged the Jan CPI by 4bps lower vs the old seasonal factors), the monthly CPI jump would have been 0.4%.

A second notable data point: According to SocGen, in January, 43 of the 62 core CPI subcomponents were positive on a monthly basis, the most since May 2016, and above the 2017 monthly average of 35. However, while the breadth of gains was impressive, the strength was concentrated in a few components which the French bank does not expect to put persistent upward pressure on the core rate moving forward. Furthermore, what stands out is that about 14% of the core CPI was responsible for nearly 50% of the rise in the core.

And a third point of note: Of all CPI components, apparel was the biggest contributor by far to January's inflation spike (0.064pp), posting an eye-popping 1.7% SA rise in January. That was the fourth-largest increase since 1947 and the biggest since a 1.8% jump in February 1990. On an NSA basis, it registered its biggest January increase since 1951.

Yes but... according to SocGen, Q1 strength has been a feature of this category over the last few years (likely reflecting changing discounting patterns. However, that Q1 strength has generally proved short-lived. Indeed, looking at first prints of apparel, Q1 over the 2015-2017 period averaged a rise of 0.4%, but the balance of the year it averaged a drop of 0.2%.

It wasn't just apparel, however: in January, the BLS reported that several components posted the largest gains in their respective histories. As SocGen analyst Omair Sharif writes, "we cannot recall having seen that many “L-EVER” mentions in any CPI report before. Perhaps they were early-year price increases that are unlikely to be repeated, but some, in our view, could be related to changes in methodology and seasonal patters."

For example, the “window and floor coverings and other linens” category, which is a measly 0.3% of the core CPI, jumped by 4.1%, adding 0.135pp to the core by itself! Within appliances, laundry equipment climbed by 3.4%, perhaps reflecting the new tariffs on washing machines, and the reported price increases instituted by firms hit by the charges. Women’s apparel climbed by 3.4%, which helped to boost the overall apparel category. The information technology commodities gauge rose by 1.0%, with the telephone hardware component climbing by 2.5%. Elsewhere, the medical care index increased by 0.41% SA, the strongest reading since August 2016. The bulk of that rise (about 85%) was centered in the hospital services index, which climbed by 1.3% and added 0.037pp to the core increase

In terms of some of the other components, rent climbed by 0.34% while OER advanced by 0.28%. There was less giveback in those shelter components in January than we had expected. The new vehicles index fell by 0.1% while airfares slid by 0.6%, both of which were in line with our expectations. Hotel rates tumbled by a surprising 2.4%, the third-largest decline in four years. Recreation was softer than expected, posting an unchanged reading, while communication was also flat.

* * *

But the bottom line about this particular inflation report is that it was too good - or rather strong - to be true. Quote SocGen:

Out of 62 subcomponents we track in the core, 14 posted monthly increases that were more than two standard deviations above their norm.

That was the highest number since June 2008 and was well above the 20-year average of 9 components. In other words, there were a number of outliers that boosted the monthly core rate by  much more than their usual contribution. In fact, January tends to be an extremely volatile period with exaggerated strength. Indeed, in the last 20 years, January holds four of the top ten spots for the month with the highest number of outliers.

Which brings us to the bank's conclusion and why it is skeptical of the CPI's strength:

First, a large number of core components were, in our view, outliers to the upside and exaggerated the core advance. Second, although many core items increased in January, much of the strength was concentrated in a handful of items that seem unlikely to be persistent sources of strength moving forward. In short, we are still comfortable with our view that the core CPI will advance in 1H and climb to around 2.0%-2.1% by mid-year before moderating in 2H

Judging by the schizophrenic market, while the dollar agrees thoroughly with this skeptical assessment, 10Y bonds couldn't disagree more. Stocks, of course, go with whatever says to BTFD.

Comments

MK ULTRA Alpha poor fella Wed, 02/14/2018 - 18:21 Permalink

European and US military surplus, most of it brand new and will last a life time.

I just bought 3 Finnish army wool shirts jackets, thick, warm, brand new and stylish.

I have the entire Flextarn camo cold and wet weather German army parka and liner, and matching field pants with suspenders and pants linera. And the wool type Flextarn hat, all made in Germany. All in brand new condition. Super Euro high quality at super dirt cheap prices which would have cost a ton even if it were Chinese.

Austrian army field pants, brand new, will never wear out, dirt cheap. So many items would have to sit down and list them all.

Couldn't have bought these items commercially, because this kind of quality would be too expensive, Chinese products break and wear out too quick. The quality isn't anywhere near European and Japanese quality.

The Europeans downsized their military from the 80's and 90's. The quality of product at a super low price, meant I could buy now before the inflation hits. Many items were marked up at the start of the year, and not just apparel, many products were marked up in stores and on line.

I expect the prices I paid for this clothing and gear to double over the next three years.

 

In reply to by poor fella

buzzsaw99 Wed, 02/14/2018 - 15:14 Permalink

i don't know if any of you bitchez have checked the price of linens lately but pillow cases cost fucking $30.  Sheets are $100.  I bought socks a few weeks ago that cost $13 per pair.  sure you can buy cheap shit that sucks and doesn't last but for anything decent that shit is steep as hell.

buzzsaw99 RAT005 Wed, 02/14/2018 - 15:25 Permalink

naw, i must have missed the buy 2 pillow cases get a free trial blonde offer. i just muttered something about egyptian cotton under my breath and ponied up at the register.  I will say this though, i learned this trick at a hotel i stayed at once.  I have been putting my older top sheets on the bottom on top of the new fitted sheet so i don't have to wash the new fitted sheets very often (which is where a lot of the wear and tear occurs).  Also, I have sheets that are twenty years old that were better made than the new $100 sheets.  Some I still use for drop cloths etc..

In reply to by RAT005

Give Me Some Truth Wed, 02/14/2018 - 15:39 Permalink

And cigarette inflation and six-pack inflation and Honey Bun inflation and Big Gulp inflation. It's like they want me to die from nothing one day.

I took the 6-year-old daughter and her 7-year-old friend to see "Paddington 2" during the cheaper matinee showing. Two medium tubs of popcorn, 3 medium drinks and a bag of M&Ms set me back $59.

I wonder how much this would have cost my dad for a similar outing in 1972 (when I was six)?

And I bet Dad could have gotten his six pack of Bud and pack of Winstons after he got us home for maybe $1.50.

 People, don't buy the "No inflation" BS. It's the biggest lie of them all.

 

 

Seasmoke Wed, 02/14/2018 - 15:54 Permalink

Clothes prices have gone thru the roof the past 18 months. I can't even afford marshalls any more !!! Atleast they have cured me of a clothes shopping addiction. Cold Turkey.

Thankfully over past 25 years. I have accumulated more clothes than an actual Marshalls. I probably should open an eBay store and make a score. Thank You Mr Yellen !!!