Today marks the 100th edition of this newsletter! As if the economy knew about the milestone too, it gave us a surprise of its own with a cooler-than-expected inflation report.

Wall Street celebrated by turning stocks green on the day.

Still, some of the report’s under-the-hood details suggest more stickiness than the Fed may care to admit.

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Housing ain’t budging

Elevated housing costs are proving to be the most stubborn obstacle in the Federal Reserve’s inflation battle. 

On Wednesday, the Bureau of Labor Statistics showed headline inflation clocked in at 2.9% in July, cooler than the expected 3.0%. 

That marked the first time since March 2021 the print fell below 3.0%. 

However, the shelter component of the CPI index saw an unexpected 0.4% jump on the month, above the 0.2% rise in June.

That reversal in trend presents a new headache for policymakers, who seem all but locked into an interest-rate cut in September.

The shelter component accounted for roughly 90% of the gain in July CPI, according to the BLS release.

Since the same time last year, the shelter index is up more than 5%, and it’s proving stickier than the rest of the items tracked to measure inflation.

“Heading into this report, the key factor for us was whether last month's deceleration in shelter would hold,” Bank of America analysts wrote in a note to clients.

“The July CPI report indicated it did not.”

Both of the primary components of shelter inflation — Rents and Owners’ Equivalent Rent — surprised to the upside with 0.5% and 0.4% gains, respectively. 

“Continued firmness in shelter implies a slower pace of disinflation,” BofA analysts maintained. “It will offset some of the good news we saw from July PPI data on medical care services inflation when it comes to the PCE inflation report later this month.”

Now, if you take out shelter from the inflation data, CPI climbed 1.7% — below the Fed’s stated target of 2.0 percent. 

From a certain view this is encouraging.

Yet it also does not feel honest to separate housing costs from the rest of the items included in everyday expenses, given that rent is the largest expense each month for most Americans. 

"Evidence is piling up that consumers are struggling under the combined weight of high prices, elevated interest rates, and the cooling job market,” said Mark Hamrick, senior economic analyst at Bankrate.

“Even with the ‘as expected’ readings, prices broadly continued to rise last month."

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Elsewhere:

📈 Employment is getting concerning. Chicago Fed President Goolsbee said he’s growing more worried about the labor market compared to inflation. Recent CPI shows cooling, but jobs data continues to disappoint. In his view, interest rates are now “very restrictive,” and he’s leaning toward prioritizing the jobs side of the Fed’s dual mandate. (Bloomberg)

💸Millennials will be richer than their parents. Soaring home prices and smart investments have helped boost a generation that was once considered constantly behind. A new report shows millennials are now wealthier than previous generations were at their age. (WSJ)

✂️”Big Short” investor cuts stock portfolio. Michael Burry, who was portrayed by Christian Bale in the Hollywood film about the 2008 financial crisis, slashed his equity portfolio in half during the second quarter, according to his firm’s filing. One interesting move Burry initiated, though, was increasing his position in Alibaba stock from $9 million to $11.2 million. (Bloomberg)

Rapid-fire:

• Used car prices fell again in July and are now down 20% from pandemic highs (Yahoo Finance)

• Warren Buffett’s Berkshire Hathaway added small stakes of Ulta Beauty and Heico in the second quarter (Bloomberg)

• Wall Street firms will pay over $470 million to settle civil charges with US regulators over texting and record-keeping issues (Reuters)

• The world’s biggest steelmaker warned of a looming industry crisis that will outpace the 2008 downturn (Business Insider)

• Mars agreed to buy Kellanova for nearly $36 billion in the biggest food company deal of the year (Bloomberg)

Last thing:

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