The following is a summary and extension of my post-Employment tweets. You can follow me @inflation_guy (and tell your friends!)
- 175k +25k revisions, nice jobs figure. Oh, but Unemployment up to 6.7%. Love how these seem to always provide opposite surprises.
- One of my favorite labor charts. Want a Job Now, versus the Unemployment Rate:
- 1 way to add more jobs is to have em all work less. Is this an Obamacare effect since part-timers don’t count?
- …regardless, fewer hours worked –>lower output. Expect more downward revisions to Q1 growth ests. Q2 too, if this is ACA.
- If we all end up with jobs, but we’re all working only 30 hours per week, is that better than if only 93% have jobs, working 40?
It will be interesting over the next few months to see if the Hours Worked figures are weather-related (as will be claimed). I suspect that for the most part, they are not. Notice that if there was any weather effect over the last few years, it is not noticeable in the data (nor is it apparent in the unrevised data, incidentally). So, while this year’s weather was colder and snowier than usual, I am skeptical that this can account for more than a small downtick in the hours worked figures.
I rather suspect that the drop is more likely to be attributable to the definition of what constitutes a “full time worker” under the Affordable Care Act. And the question I asked rhetorically above is actually worth thinking about seriously because, looked at one way, the ACA is a jobs program: it will tend to cause businesses to cut back on full-time work and replace those people with more part-time work. The effect should be to cause the Jobless Rate to decline along with Hours Worked. But is that a good thing (because more people have some job) or a bad thing (because people who formerly had a full-time job now only have a part-time job)?
That’s a normative question, not a positive question. But I would think that one effect would be to push more people from what we think of today as “middle class” to lower-middle class, while perhaps raising some who were previously in poverty to be also lower-middle class. I don’t think this was one of the purposes of the law – because frankly, it doesn’t seem that much economic thought went into the design of the ACA – but it is interested to reflect on.
I don’t know what to make of the “Want a Job Now” chart. Let me explain that series, first. “Not in the Labor Force” implies that these people aren’t even looking for jobs, because if they were then they would be counted as unemployed. But, despite the fact that they are not looking, they would like to have a job and would take one if it was offered. While the Unemployment Rate is falling, almost as many people are in the “not in labor force but want a job now” category as were in that category at the beginning of 2011. Why aren’t these people looking?
A fair number of these workers, some 2.3mm of them, are described as “marginally attached” because they’ve looked for work in the last 12 months, and want a job, but haven’t looked in the last 4 weeks so that they aren’t counted as part of the work force. And those are the ones who are holding the category up (see Chart, source Bloomberg).
Some of those workers are not looking because they are “discouraged”, but that only represents about 750k of the 2.3 million or so in this category (and discouraged workers have fallen from about 1 million in 2011, so the decline is consistent with the Unemployment Rate).
So, we are left with a category of people who have looked for work in the past, and would take a job if it was offered, but haven’t looked in the last month. Or the month before. Or the month before. But, at some point, they had at least done a cursory search of the wanted ads.
I think the story of these “marginally attached” workers is worth studying. Are these structurally-unemployed people, who should be counted as such? Are they incentivized to remain out of the work force due to governmental benefits they receive? Or are they, and the decline in the labor force participation rate generally, telling us that the jobs aren’t coming back (or that the newly-created jobs are of lower quality than the old jobs)? I don’t know, but none of the answers is good. We want to see this number decline.
The story of the declining hours worked is potentially much more serious, though – partly because it is a new effect. The nation’s total output is number of employees, times average hours worked, times output per hour. If the number of employees is rising, but they’re working less, then unless productivity rises the total output (that is, GDP) won’t grow very quickly. This could be an early recession sign, or it could be a consequence of the ACA…or it could be a sign that the ACA is pushing a fairly non-robust economy towards the recessionary tipping point. Again, none of these things are good.
So, while the stock market roars its approval about this Employment number, I growl my displeasure. But this is normal.
Here is a summary of my post-CPI tweets. You can follow me @inflation_guy:
- Well, that was boring. CPI exactly as expected. Although frankly, most big shops expected +0.2% on core (me too).
- Weird month where higher fuel prices seem to have taken edge off Shelter, but lower gasoline prices pushed Transp down!
- Apparel down, and New cars & trucks down despite rising in PPI. So much for new PPI. Medical care commodities up though…
- Medical Care as a whole +0.3%. Only 7.6% of the whole CPI, but reverses a recent trend caused by last year’s sequester.
- Core services remained at 2.3% y/y, core goods declined to -0.3%. My proxy, though, is rising so this latter won’t continue.
- Striking – core less shelter now at +0.933% y/y, the lowest since the real deflation crisis in 2004.
- accelerating CPI categories: Housing, Med Care, Other (52.4%), Decel: Apparel, Educ/Comm (10.5%). Unch: 37.1%
- Primary rents +2.88% y/y, virtually unch from +2.87%. But Owners’ Equiv Rent +2.517% from +2.488%.
- New & Used cars and trucks under tremendous pressure, +0.3% y/y, and that’s 7.5% of core CPI. And Apparel (another 4%) has flatlined.
The reason that most big shops – and me too – expected +0.2% or even +0.3% on core, as opposed to the +0.13% that we got, boils down to three things: second, the housing part of core CPI, which is huge, is clearly accelerating and continues to do so. Second, core goods, which represents most of the rest, has been flat or deflating for a while, and normally that part of inflation is more mean-reverting.
The housing part of that view is working out. The Shelter subcomponent of Housing (which is ¾ of it, after extracting utilities and household furnishings and operations) is now rising at 2.58%, the fastest rate since 2008. Owners’ Equivalent Rent, the largest single component of the CPI, is at 2.52% y/y, and as I’ve illustrated often – here comes that chart again – there is every reason to expect this to continue. OER should be in the 3.3%-3.5% range by year-end.
Core Goods, on the other hand, remains stuck in the mud. There was some reason to expect a rise in that index this month, as the Passenger Cars component of PPI rose +0.5% (but new vehicles in the CPI rose only 0.08% m/m), and the pharmaceuticals part of PPI was +2.7% (but only +0.9% in the CPI). In all likelihood, this suggests that core goods will move higher in the months ahead.
However, the weakness in Apparel and in vehicles has a commonality – those are sectors that are either sourced from non-US manufacturers or (in the case of vehicles) receive heavy competition from non-US manufacturers, and especially Japanese manufacturers in the case of autos. The recent strength of the USD with respect to the Yen and Yuan is not irrelevant here. Although early 2014 has seem some reversal in that trend with respect to the Yen, it’s not likely to have a serious reversal for a while – the Yen is going to keep getting weaker, and that will keep pressure on goods prices in the US.
Indeed, by one measure price dynamics in the US are closer to deflation than they have been since 2004. And it’s not a measure which should be taken lightly: core inflation, ex-shelter, is only 0.9% y/y, as the chart below (source: Enduring Investments) shows.
In the mid-2000s, the Fed flirted much more with deflation than they thought they were, because the housing bubble hid the underlying dynamic. Conversely, in 2010 we weren’t really very close to deflation, but the fact that housing was collapsing made it appear that we were. You can see both of these episodes on the chart. It is possible that the 2004-type stealth deflation could be happening again, but I don’t think so for one big reason: in 2004, money growth was in the 4-5% range as the economy was recovering, which created disinflationary tendencies. But now, we’re coming off a period of 8-10% money growth, and it’s still at 6%. It’s much harder to get deflation in such a circumstance.
And, with rents rising smartly, there is almost no chance that core inflation ends 2014 lower than it currently is. I continued to expect core inflation to move towards 3% over the course of this year (and median CPI to reach that level).
The following is a summary of my tweets following the CPI release today. You can follow me @inflation_guy. I am about to get on a plane to visit a reinsurance company to talk about inflation, so forgive me if I don’t add much color to the original tweets (as I usually do).
- CPI +0.3%, +0.1% ex-food-and-energy. About as-expected but core a little soft in that range. 1.71% is y/y core.
- Another 0.0% for Medical Care CPI. It’s hard to get core goods rising when Medical Care remains flaccid. That will change.
- Core #inflation ex-housing is down to only 1.1%! Core goods still in deflation dragging it all down…-0.1% vs +2.3% for core services.
- Owner’s Equiv Rent to 2.49% y/y. Clearly accelerating and a big risk to core going forward.
- Accel Major Grps: Housing, Apparel, Transp, Other (64.8%) decel: Food/Bev, Med Care, Recreation (28.4%). Educ/Comm unch.
- Med Care CPI only +2.01% y/y. That’s very unlikely to continue.
Big risk to core remains housing, which accelerated a heady +0.1% y/y, which is a big move for a ponderous group like Housing. Not surprising – I’ve been forecasting it for a long time, and it’s happening.
Below is a summary of my post-CPI tweets. You can follow me @inflation_guy. And, given where all of this seems to be going…you ought to.
- Core inflation only up 0.122%. But housing continues to accelerate! Apparel -0.5% this month.
- Core dips slightly to 1.734% from 1.766% y/y. At odds with our forecast, due to the continued weakness in core goods.
- Still think core ends 2013 over 2%, but depends on core commodities coming up some. Our housing forecast looks good.
- Primary Rents stays at 3%, OER at 2.2%.
- Medical Care 2.4% y/y from 2.3%. And that’s with “health insurance” falling to 2.5% from 2.9%. Obviously, that’s all pre-ACA.
- Accel Major groups: Medical Care (7.2%). Decel: Apparel, Recreation, Educ/COmm (16.3%). Everything else sideways.
- This really IS mostly about the apparel decline. Bad back-to-school adjustment probably.
- I think given apparel, what we know will happen in medical care, and the housing stuff…next month may be over 0.3% on core.
This has all the signs of one of those numbers (and we’re seeing a lot of them this month) that should be averaged with next month’s number because of data collection quirks. Actually, we probably ought to average September, October, and November data together to get a “before, during, and after” average around the government shutdown. The apparel decline hit women’s apparel, men’s apparel, and girls’ apparel, but boys’ apparel inflation accelerated. Medical care prices re-accelerated slightly, as I think is destined to happen because the current run-rate is significantly due to the effect of the sequester on Medicare reimbursements, but we can already see that the “insurance” category is going to be accelerating markedly in the next few months because of the large number of cancellations and re-policying that is going on around the implementation of Obamacare. While direct consumer purchase of insurance and/or medical care is just a small part of overall inflation, a big jump will still be felt in the overall data.
The key conundrum continues to be the softness in core goods, but as I’ve argued previously the biggest part of the effect is from the very low readings from medicinal drugs and medical equipment – both of which accelerated this month. If the apparel reading really is a quirk, then core inflation is going to start heading higher with alacrity now. All of the “interesting” parts of it already are.
Here is a summary of my tweets after the CPI release this morning. You can follow me @inflation_guy.
- CPI +0.1%/+0.1% core, y/y core to 1.8%. Core only slightly weaker than expected as it rounded down to 0.1% rather than up to 0.2%.
- Housing CPI was weak, second month in a row. Rents will eventually catch up w/ housing prices…but not yet.
- Apparel CPI was weak after a couple of strong up months. I’ll have the whole breakdown in a bit.
- Core was actually only 0.13%, suggesting last August’s 0.06% and this August’s number might merely be bad seasonals.
- Market was only looking for 0.17% or so, so it’s not a HUGE miss. Still disappointing to my forecasts as upturn in rents remains overdue.
- Core CPI now 1.766% y/y. More difficult comparison next month although still <0.2%.
- Accelerating major grps: Apparel, Medical Care, Educ/Comm, Other (20.9%); decel: Food/Bev, Housing(!), Transp (73.1%), unch: Recreation
- Housing deceleration actually isn’t worrisome. Primary rents were 3.0% y/y vs 2.8% last. OER was 2.23% vs 2.19% last.
- Housing subcomponent drag was from lodging away from home, household energy, other minor pieces. So housing inflation story still intact.
- Core services inflation unch at 2.4% y/y; core goods inflation up to 0% from -0.2%. Source of uptick: mean reversion in core goods.
- So OER still reaches a new cycle high at 2.23%…it’s just not accelerating yet as fast as I expect it to. Lags are hard!
The initial reading of this number, as the tweet timeline above shows, was negative. The figure was weaker-than-expected, and Housing CPI decelerated from 2.26% to 2.17%. This seemed to be a painful blow to my thesis, which is that rising home prices will pass through into housing inflation (expressed in rents) and push core inflation much higher than economists currently expect.
Housing CPI is one of eight major subgroups of CPI, the other seven being Food and Beverages, Medical Care, Transportation, Apparel, Recreation, Education and Communication, and Other. Housing receives the most weight, at 41% of the consumption basket and an even heavier weight in core inflation. So, a deceleration in Housing makes it very hard for core inflation to increase, and vice-versa. If you can get the direction of Housing CPI right, then you’ll have a leg up in your medium-term inflation forecast (although it isn’t very helpful in terms of projecting month-to-month numbers, which are mostly noise). Thus, the deceleration in Housing seemed discouraging.
But on closer inspection, the main portions of Housing CPI are doing about what I expected them to do. Primary Rents (aka “Rent of primary residence”) is now above 3%, in sharp contrast to the expectations of those economists and observers who thought that active investor interest in buying vacant homes would drive up the price of housing but drive down the price of rents. Though I never thought that was likely…the substitution effect is very strong…it was a plausible enough story that it was worth considering and watching out for. But in the event, primary rents are clearly rising, and accelerating, and Owners’ Equivalent Rent is also rising although less-obviously accelerating (see Chart, source BLS).
So, it is much less clear upon further review that this is a terribly encouraging CPI figure. It is running behind my expectations for the pace of the acceleration, but it is clearly meeting my expectations for what should be driving inflation higher. As I say above, econometric lags are hard – they are tendencies only, and in this case the lags have been slightly longer, or the acceleration somewhat muted, from what would typically have been expected from the behavior of home prices. Some of that may be from the “investors producing too many rental units” effect, or it might simply be chance. In any event, the ultimate picture hasn’t changed. Core inflation will continue to rise for some time, and will be well above 2% and probably 3% before the Fed’s actions have any meaningful effect on slowing the increase.
Here are my post-Employment tweets. You can follow me @inflation_guy.
- Pretty weak NFP number since the payrolls figure (169k) plus revisions (-74k) is way worse than forecast. Decline in rate irrelevant.
- Actually think Fed spent so much time talking about starting taper that they may do it anyway, but have an excuse now to delay.
- Nothing like a weak NFP number to help the beleaguered bond market. Bounce may temporary but in Sep you don’t wanna fade rallies.
- I don’t watch it much, but avg hrly earns at 2.2% is highest since brief pop to 2.3% in mid-2011. Y do people hate TIPS here?
So 10-year note yields broke above 3% overnight, the highest level since 2011. More importantly, 10-year real yields had been approaching 1% (reaching 0.93% overnight) as fear-of-taper has investors quite reasonably fleeing fixed-income.
I said above that I don’t look much at average hourly earnings. This is because the evidence is that wages follow prices, rather than prices following wages in a mythical “wage-push” inflation. Moreover, we can intuit that this is the case because if wages led inflation, we would really like inflation since we would tend to see our wages increase before inflation did…we would be doing better all the time, rather than worse. In fact, we know intuitively that is wrong.
With that giant caveat, it is worth pointing out that average hourly earnings are above median CPI (which right now is a better measure of the central tendency of inflation because of the large one-off effects in medical care) by the most they have been since 2011 (see chart below, source Bloomberg).
The unemployment rate declined, but only because the Participation Rate plumbed a new post-Carter low at 63.2%. You have to go back to July 1978 to find participation rates this low, and back then there were a lot fewer women in the workforce.
All in all, this is a pretty ugly employment report, but the FOMC has carefully lined up its doves and even gotten a few hawks to say that tapering ought to begin this month. I suspect it is still likely that they start down that path, but probably the first steps are fairly small. Still, given how far rates have risen and the possibility that this will lead to some “taper: off” talk, and given the strong seasonal tendency for rates to decline in September and early October, I would not want to fade a bond market rally.
Here are my post-CPI tweets from this morning. You can follow me @inflation_guy:
#inflation +0.2% core. But here’s the thing: that’s with housing showing unexpected softness. And housing markets are bubbling.
- Unrounded core inflation 1.698%. That’s the last we’ll see of 1.6% handles for years.
- Core inflation actually barely rounded up, at +0.155% m/m. But, again, that’s with housing inexplicably weak.
- Core services 2.4%. Core goods still plodding along at -0.2%, and holding overall core inflation down. That won’t persist.
- CPI major groups accelerating: Food/bev, Housing, Apparel, Transp, Rec, Educ/Comm (89.5%). Decelerating: Medical and Other (10.5%).
- …but housing only accelerated b/c household energy. OER was unch at 2.2% and primary rents 2.8% from 2.9%. That’s a quirk.
- certainly nothing in today’s inflation data to scare the Fed into a faster taper.
- bonds are breaking lower; although the convexity overhang has been worked off, we never got the expected bounce! Not sure why they’re weak.
- higher rates->higher velocity->more inflation pressure, ironically. in this case, higher rates won’t affect money supply as offset to that
Of all of the places I expected to see a downside surprise, housing was not it. Of course, econometric lags aren’t the same as destiny, so the fact that the leading series all turned higher at the “right time” to cause a rise in Owners’ Equivalent Rent right about now is helpful information for investing, but not necessarily a timing tool!
At 2.2%, OER is still well above core inflation and primary rents at 2.8% are as well. But core goods continue to drag on the overall core inflation number (and to hold core inflation well below median inflation, which comes out later this morning).
I feel I should nudge lower my forecast for 2013 core inflation again, to a range of 2.4%-2.7% from 2.5%-2.8%. I am doing this for two practical reasons related to housing. One is that every month that passes without the expected acceleration is one less month over which inflation can accelerate to reach my year-end target. The other is that every month that passes without the expected acceleration increases the odds that I’m simply wrong, and something is holding down rents even though home prices are launching higher. I don’t think that’s true, but I want to be cognizant of overconfidence bias! However, at this point my nudging of the forecast is more about the former point: my 2014 forecast range remains 3.0%-3.6% for core.
Writing from the Netherlands after visiting future clients this week; here is a summary of my post-CPI tweets (Follow me @inflation_guy) :
- very surprising core inflation, barely rounded up to 0.1% month/month. Waiting for breakdown, but Shelter was still +0.1% so something odd.
- Core CPI ex-shelter only 1.39%, not terribly far from the 2010 lows.
- …part of the answer is that core commodities decelerated further, -0.1% y/y. But core services, most of which is housing, ALSO decel.
- Major groups; Accel: Food/Bev (15.3%); Decel: Apparel, Transp, Medical Care, Educ/Comm (34.3%). Balance unch on y/y rate rounded to tenths.
- Housing actually accelerated slightly. So decline in core was apparel, Medical Care, Education, and non-fuel transportation. Hmmm.
- …If you believe core is going to keep falling, you DON’T want to bet on it being led lower by Medical Care and Education.
- We expect this to be the low print on core. Our forecast remains 2.6%-3.0% for 2013, but only 0.6% has been realized so far
- It wd probably be prudent to lower our 4cast range; we will if there is another miss lower in May. But not by much: housing still the driver
I think the sixth bullet is the key point: core inflation is drooping because of Medical Care and Education & Communication decelerating. This is terrific news, but there’s about forty years of history that should lead one to be skeptical that these are the categories that will lead inflation lower.
Our forecast for 2.6%-3.0% is based on an expected acceleration in rents, based on the recent rise in home prices. We’re not changing that forecast yet because our model didn’t expect the acceleration to happen yet. However, it should begin to happen in the next 1-3 months.
If primary and Owners’ Equivalent rents don’t begin to accelerate in the next month or two, we will lower our 2013 forecast simply because it will be difficult to see a sufficient acceleration to reach our goal with only a half year or so to go. But the reason we don’t lower our forecast much is that the primary driver here is still rents, and there is no question which way rent inflation is headed. Only if we conclude that for some strange reason there is going to be a permanent shift in the capitalization rate of owner-occupied housing (that is, if there is a permanent shift in the ratio of rents to prices from what it has historically been) would we reconsider the direction of our forecast, and then only if home prices stopped launching higher.
Meanwhile, weak growth numbers, soft inflation numbers, and the seeming success of the Abe program in Japan as growth there has abruptly surprised higher (although it cannot be attributable to the BOJ monetization, since that program hasn’t been around long enough to affect the real economy even if there is money illusion at work) ought to cause any silly talk about the “taper” of the Fed’s buying program. That was always due for enormous skepticism, but with all of the arrows pointing the wrong way there is almost no chance that the FOMC will elect to taper purchases in the next few months. Indeed, I would expect the “hints” of such action to cease in short order. The only reason to talk about it is to (a) convince the world that Fed policy is credible, but a ruling on that credibility won’t be made until the episode is over, based on results, not at this time and based on what they say; or (b) because there is little cost of doing so, since the markets won’t panic if there’s no chance of near-term implementation.
- upward surprise + upward revision in #Payrolls – not too shocking, as I pointed out in last article. Weak hours though…
- Here is part of what’s happening in #payrolls: more jobs, fewer hours = employers cutting back hours to avoid Obamacare coverage
- Question is, which is better for confidence? More jobs, lower earnings & wages, or fewer, but better, jobs? Probably the former.
- average weekly hours have stagnated since 2011, even as Unemployment has fallen.
Today’s Employment report was pretty straightforward: an upward surprise to payrolls and upward revisions; a decline in the Unemployment Rate, and declines in hours worked. The upward revisions to Payrolls is not really a surprise, although seeing the Unemployment Rate continue to decline when Consumer Confidence “Jobs Hard to Get” is increasing is unusual.
Two years ago, the “Average Hours Worked” was 34.4 hours and the Unemployment Rate was 9.0%. Today, average hours worked is still 34.4 hours and the Unemployment Rate is 7.5%.
What I said about Obamacare coverage should be expanded a bit. There have been anecdotal reports (see, e.g., here and here) that many employers are cutting back hours for some employees, because they are required to offer health insurance (at steep premium increases) to part-time employees working at least 30 hours per week. The incentives are large, especially for employers who are near the 50 employee cutoff, to cut back employee hours. The way this would show up in the data, if the behavior was widespread, would be (a) a decline in average hours, as more people work shorter shifts, and (b) potentially (but not automatically) an increase in the number employed, since an employer who cuts 100 hours of work from existing employees is now 10 hours short of the labor input needed. I suspect this is only partly the case – if you cut 100 hours, maybe you add three 25-hour part-timers (it still costs money to hire, after all) – but it may help explain why the payrolls number keeps rising and the jobless number keeps falling although the average hours worked is pretty stagnant.
It would also help resolve the conundrum between the “Jobs Hard to Get” survey result and the Unemployment Rate, although it is a small divergence at present. If respondents are answering the survey as if the question is whether good or full-time jobs are hard to get, it may well be the case that those jobs are getting more difficult to find while there are more part-time positions being offered.
This is mere speculation, and storytelling, but I think it’s plausible that this is happening and may be affecting the data.
Below is a summary of my post-CPI tweets. You can follow me @inflation_guy.
- Sigh.Not this month!Core #inflation +0.1%, waiting 4 data to see rounding. Big fall in apparel, & housing uptick not happening yet.
- Apparel decline most since April 2001. That will reverse.
- Core with rounding looks like 0.106%, 1.89% y/y. definitely weak. Will look at breakdown to see where.
- This is the most that y/y has been below our forecast track since January 2009!
- Core services fell from +2.6% y/y to +2.5%, but core goods fell to flat from +0.3%. Our thesis is that these will converge up, not down.
- Core goods is inherently harder to forecast. Core services is largely housing.
- Accelerating subgroups: Educ/Comm (6.8% of basket). Decel: Apparel, Transp, Food & Bev, Recreation (41.7%). Unch: Housing, Med Care, Other
- CPI drooping appears to be seasonal maladjustment. The Apparel burp itself is worth 0.04%.
- Housing – we’re still waiting for the upturn. This month primary rents rose to 2.81% from 2.74% y/y, Lodging Away from Home rose too.
- Owners’ Equivalent Rent (24% of CPI) fell to 2.083% vs 2.144%. Since Primaries are rising, probably just a lag issue. 1 or 2 more months.
- Apparel saw broad-based huge declines. Again, likely seasonal. Core decelerated 0.11%, and 0.06% of that was Apparel.
- Our forecast for full-year CPI doesn’t change as a result of this number. We’re still at 2.6%-3.0% on core for 2013.
I don’t want to overplay the Apparel card here. March is a big month for seasonal adjustment for Apparel, but it is possible that this marks the end of the two-year spike in Apparel prices. If it does, then it resolves one speculation I’ve had: that the rise in Apparel, after twenty years of flat-to-declining prices, indicated that in some areas the globalization dividend on inflation may have ended. It is far too early to say that speculation is wrong, especially with big seasonal adjustments in March. Prior to 1992, there were certainly setbacks in Apparel on a regular basis due to the difficulty in seasonal adjustment. So it’s too early to say this is wrong, but not too early to say it’s surprising. And, after all, there’s always the possibility that the screwy numbers were the last twenty-three of them, and not this one. But these are still the highest seasonally-adjusted Apparel prices we’ve had in March since 2001 (see chart, source BLS, below).
The small blip down in Housing is much less of a concern. Primary rents are still rising, and OER didn’t exactly decline aggressively. We’ve been waiting out a “flat part” in the lag structure – this just means we have to wait another month or two. The chart below is updated (multiple sources) through this morning.
None of this will help the commodities guys, nor the TIPS guys, in the short run. But it doesn’t change the big picture for inflation. It’s coming. We just have to wait another month or two for the evidence!