The Numbers Look Fine Until You Read Them | S2 E345 | 05-12-26

That CPI headline might look “close enough,” but when we slow down and read the report like investors do, it’s hard to call April a win. We walk through why a 0.6% monthly jump in headline inflation and a 0.4% rise in core inflation point to renewed price pressure, not a smooth glide back to normal. If you care about the stock market, bond yields, mortgage rates, or your grocery bill, this breakdown connects the dots from the Consumer Price Index to real world costs. 

We get specific about what’s driving the print: energy commodities surge, services inflation picks up where most spending happens, and housing stays stubborn with owner’s equivalent rent still pushing higher. We also flag the secondary effects showing up in areas like airline fares and the way higher oil prices can spread through the economy. The big idea is simple: inflation that broadens beyond one category is harder for the Federal Reserve to ignore, and harder for markets to dismiss as noise. 

Then we zoom out to the risk backdrop, including how Middle East tensions and Strait of Hormuz supply concerns can keep energy prices elevated long enough to influence multiple CPI components. With two months of hotter inflation in a row, the rate narrative shifts toward the Fed staying on hold and the growing possibility that cuts don’t come this year at all if the trend continues. 

Subscribe for daily, market focused takes, share this with someone who follows inflation and interest rates, and leave a review if this helped you make sense of the numbers. What’s your call: temporary spike or a higher for longer inflation problem?

https://youtu.be/u91rOwSCeBc

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Transcript

Inflation Headline And Quick Setup

Megan Horneman 0:00

No matter what the headlines tell you, this inflation report today was not a good report. It is Tuesday, May the 12th, and this is Mark is with Megan. If you like this podcast, you can subscribe. There's an alarm bell that you can hit underneath. You can share it with your friends, family, colleagues, anybody who's interested in that economic data that we receive every day, and what does it mean for the markets, interest rates, and the economy? Well,

Headline Vs Core CPI Explained

Megan Horneman 0:26

today we got the very much anticipated inflation report, the consumer price index for the month of April. While it might have come in relatively in line with expectations, those expectations were not good. So let's just break this down. The headline level, which includes everything in that, that index rose six tenths of a percent in April. That's after nine-tenths of a percent gain in March. So when you look at the three-month moving average of this index, it's the highest we've seen since July of 2022. Again, another very high inflation period when the Fed was aggressively raising interest rates. The core level, this strips out this things like food, energy. This um came in up four tenths. That was after a 0.2% in March. And at 4 tenths, that's the highest we've seen since January of 2025.

Energy Services Housing And Food

Megan Horneman 1:21

Now, when we go into all of the individual components, obviously there was a lot of energy that had to do with this. That impacted the headline. When you look at energy commodity prices, they're up 5.6% for the month alone. And that's 29% on a year-over-year basis. That's a big burden for consumers. The service sector, this is where we spend the majority of our money. Think about healthcare services, financial services. That rose six tenths. That's the highest since January of 2024. And it's rising 3.4% on an annual basis. When you exclude energy, so you kind of get a super core here on the service side, that's rising 3.3% on a year-over-year basis. Housing, which some people had hoped we would see some relief in this in the CPI index, it makes up a significant portion of this index. We did not. Housing was up 0.7%. The owner's equivalent rent, which is a big portion of that housing, that rose 0.5%, and that's the highest since April of 2023. Food prices also jumped after declining in March. And then we saw a big uptick in airline fares, and this most likely has to do with the increase in oil prices. They're up 2.8% in April alone, or 20% on a year-over-year basis.

Middle East Supply Risk And Fed Path

Megan Horneman 2:43

So looking at the year-over-year numbers, which is what the Fed talks about, we're looking at headline inflation rising 3.8% in April. The core is up 2.8%. You're going to hear that people are going to try and kind of maybe make some excuses for some of these sides of what's in this report, say that some of this is temporary. I don't really care what is said. This is not a good report. Um, this is now we're in the second month here with inflation data of what's going on in the Strait of Hormuz and the Middle East conflict. And this is filtering into this data. I think there still is optimism that this is transitory. We don't know yet. Two months. Um, we'll see if this if the Strait of Hormuz opens up immediately, that we could see some relief here, but there doesn't look like there's an end in sight right now with that. So this is concerning for us. You know, we were concerned about inflation. For sure, it keeps the Fed on hold when um the new chairman comes in, when they come for their first meeting in June. In fact, we don't think there's any changes at all to interest rates this year. We're getting very close to actually changing our call to an interest rate hike at the end of the year, especially if we get a third straight month of these inflation pressures.

Rate Call And Where To Follow

Megan Horneman 3:56

That's all we have today. If you want a history of our podcast, you can go to marketswithmegan.fm. Thank you.