CPI Reaches +0.2% Ahead Of Fed Meeting

Tuesday, June 12, 2018

It’s difficult to ascertain just what has resulted from an historic summit between President Trump and North Korean Leader Kim Jong Un. Trump has mentioned removing U.S. soldiers from South Korea, which would be a nice concession to Kim (though may be more problematic for South Korean President Moon Jae-in), though little is known to this point regarding how North Korea may agree to denuclearize its weaponry.

One thing we do know this morning is new Consumer Price Index (CPI) data, released ahead of the opening bell today. The headline read of +0.2% for May was in-line with April’s unrevised headline, with trailing 12-month CPI growth of 2.8%. Ex-food & energy costs, we still see 0.2%, and with January’s high point of +0.5% matched with March’s -0.1% and the remainder of the months all at +0.2%, deuces are wild year to date, as well.

The Energy sector grew the highest both in the month of May, +0.9%, and year over year, +11.7%. Within this sector, gasoline rose the highest to +1.7%, and fuel oil is up a hefty 25.3% since May 2017. For the month, Medical Care rose 0.2% while Food prices remained unchanged.

The other shoe drops tomorrow with Producer Price Index (PPI) numbers hitting the tape during pre-market hours. In April, this headline reached +0.1%. Should these numbers stay consistent, it will continue the ongoing narrative that inflation is indeed creeping into the economy, but not quickly or in any way that presently cannot be controlled.

Surely the members of the Federal Reserve know this, as they re-convene beginning today to decide interest rate policy. There is more than a 90% change the Fed presidents will vote to rise another quarter-point to a 1.75%-2.00% range tomorrow, which will have marked the second time this year the Fed raised rates. The remaining question is not so much whether a third rate hike is in the offing, likely at the Fed’s September meeting, but whether there will be a fourth (presumably to 2.25%-2.50%) by the end of the year.

Before all this comes to pass, however, later today we will learn the fate of the long-labored merger deal between AT&T (NYSE:T) and Time Warner (NYSE:TWX) . This deal has been famously opposed by the U.S. government — some say by President Trump directly — although participants have been quick to point out there have been plenty of precedents with mega-mergers of this stripe. Investors will be paying close attention.

Currently, both AT&T and Time Warner carry Zacks Rank #3s (Hold). AT&T has a Zacks Style Score (Value - Growth - Momentum) of B, whereas Time Warner’s Zacks Style Score is A. Combing the two companies would bring about $284 billion in market cap together.

Mark Vickery
Senior Editor

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