The hope was the data would be soft enough to halt the move higher in bond yields, which shrugged off a drop in oil prices yesterday, the rising dollar, falling stocks, and market chatter of a potential Fed hike in 2025... and a small miss for CPI sent yields careening lower...
However, rather than the higher/lower monthly gameshow, let's look at the structural factors at play.
Few in markets called the last inflation episode.
March 2021 saw US headline CPI go over 2%, where it has still not returned and is trending higher: today's consensus is another rise to 2.9%. We can't claim any prizes as such, but in early June 2021 we warned that "understanding the global inflation outlook is currently more about (geo)politics/geoeconomics than it is about just economics or econometrics: we conclude that when encompassing this logic, the range of potential future inflation outcomes --and market reactions-- varies hugely."
Then we got the invasion of Ukraine (geopolitics) and the passage of the US Inflation Reduction Act (politics).
Today, inflation is even more about (geo)politics/geoeconomics and the analogue world of farms, factories, trucks, ports, ships, rail, trucks, and warehouses than the fantasy digital one where things just arrive when needed which most economists inhabit.
President-elect Trump just announced a new "EXTERNAL REVENUE SERVICE":
"For far too long, we have relied on taxing our Great People using the Internal Revenue Service (IRS). Through soft and pathetically weak Trade agreements, the American Economy has delivered growth and prosperity to the World, while taxing ourselves. I am today announcing that I will create the EXTERNAL REVENUE SERVICE [ERS] to collect our Tariffs, Duties, and all Revenue that come from Foreign sources. We will begin charging those who make money off with Trade, and they will start paying, FINALLY, their fair share."
Chatter is the ERS may come under the Treasury, where economic statecraft, whereas tariffs are currently collected by the Department of Homeland Security. This is still compatible with what I said yesterday about potential US tariffs T+1 or gradually scaled up, to ensure supply chains shift to the US before prices have to rise.