The latest year-over-year Consumer Price Index (CPI) figures, a commonly used approximation of inflation, were released on Friday and the numbers came in higher than expected (see graph below). The CPI rose 8.6 percent from prior year, marking the highest inflation reading in more than 40 years. The Core CPI, which strips out food and energy, rose 6 percent year-over-year, also exceeding estimates. Shelter, food, and gas were among the biggest contributors to the jump.
Markets were rattled by the hotter than anticipated reading, fearing that the Federal Reserve (Fed) may need to be more aggressive in raising rates. The S&P 500, a proxy for large-cap US stocks, dropped 5 percent for the week and is now down more than 17 percent year-to-date. The MSCI ACWI, a proxy for large-cap global stocks, fell 4.4 percent for the week and is down 17 percent in 2022, as well. Bonds prices also dropped for the week, with the Bloomberg US Aggregate index, a proxy for investment grade bonds, losing 1.5 percent.
Persistently high inflation has increased pressure on the Fed, as they attempt to balance the need to reign in inflation without tipping the economy into recession. Bond traders are now pricing in a rate hike of 175 bps between now and September. If that comes to pass, it will be the most aggressive tightening since 1994.
Prices & Interest Rates
Crude Oil (US WTI)
2 Year Treasury
10 Year Treasury
30 Year Treasury
Source: Morningstar, YCharts, and US Treasury as of June 13, 2022
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