It finally happened – and oh man it was not what we were expecting. CPI this morning came in hotter than expected, at a whopping 9.1% YoY vs estimates of 8.8% - that is the largest gain since 1981. The print sent futures lower as investors were reminded that the Fed has been behind the curve, and while we’ve seen input costs going lower as of late, that was too little, too late. Investors are now pricing in only 25% probability of a 75bp hike – there is now 75% probability of a 100bp hike (up from 0% chance of a 100bp hike a week ago), as investors ponder if the Fed will join the Bank of Canada in hiking by 100bps at their next meeting. On the bright side, while the Core number was higher than expected, it still showed deceleration from 6% to 5.9% on the YoY rate. CPI also showed that gasoline prices were up 11.2% MoM, but with prices having marginally fallen in recent weeks there is hope for a softer number come next print.
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