CPI Remains Menacing as Headline Inflation Surprises to the Upside

While CPI jumped higher, restaurant inflation continued to moderate, but remains above 4%. Food at Home increased slightly after trending down consistently since mid 2023. The prospect of interest rate decreases hasn’t been eliminated, but the timing of cuts has certainly been shifted & the number of cuts will be fewer. The Fed may be facing the dilema of whether low unemployment and strong GDP is worth running 3-4% inflation over the long term. There's a very real question as to whether structural demographic changes and reversal in globalization are changing whether 2% is a realistic longterm target.

Looking ahead to next month’s report, I suspect we’ll see more of the same. Wage inflation is running about 1pt higher than CPI and with record low unemployment prices will follow.  The CA $20 min for QSR will affect more than just restaurant wages and prices for the balance of the year – and with CA accounting for 15% of US GDP it has an outsized effect on national readings.