Summary of My Post-CPI Tweets
Below is a summary of my post-CPI tweets. You can follow me @inflation_guy.
- CPI +0.0%, +0.2% on core. Above expectations.
- Core 0.203% before the rounding to 1 decimal place. So this didn’t “round up” to 0.2%. Y/y core at 1.82%, versus 1.7% expectations.
- Today’s winners include Treasury, who is auctioning a mess of TIPS later.
- Today’s losers include everyone shorting infl expectations last few months. Keep in mind median CPI > 2.2% so this is not THAT shocking.
- Core services +2.5%, core goods -0.2%. Both higher (y/y basis) than last month.
- Fed will be considered a “winner” here since y/y core moves back toward tgt. But in fact losers b/c median already near tgt & rising.
- Accel major groups: Housing, Apparel, Medical, Recreation, Other. Decel: Transp, Educ/Communication. Unch: Food/Bev.
- ex motor fuel, Transportation went from 0.6% y/y to 0.7% y/y.
- Housing: primary rents 3.34% from 3.29%. OER 2.72% from 2.71%. Lodging away from home was big mover at 8.4% from 5.0% (but small weight).
- Within medical care, medicinal drugs decelerated from 3.08% to 2.77%; but hospital & related svcs rose to 3.91% from 3.47%.
- Core CPI ex-housing still rose, from 0.88% (a ten-year low) to 0.95%.
- Primary rents to us look like they should still be accelerating, and are behind pace a bit.
- Really, nothing soothing at all about this CPI print, unless you were hoping to get inflation “back to target.”
- Pretty feeble response in inflation markets to upside CPI surprise, but that’s likely because of the looming auction.
After several months of below-trend and below-expectations prints in core inflation, core inflation got back on track today. I must admit that I was beginning to get a big concerned given the multiple months of downside surprise (especially in September, when August’s core inflation figure printed 0.0%), but the solidity of Median CPI has always suggested that we should be getting close to 0.2% prints every month and so a catch-up was due.
It is also possible that median inflation could converge downward to core inflation, but quantitatively we would only expect that if the reasons for core inflation’s decline were that categories which tend to lead were heading lower. In this case, that wasn’t what was happening: most of what was happening to core inflation was self-inflicted, caused by sequester effects that pushed down medical care. So it was always more likely that core inflation would begin to converge higher than the other way around.
Some Fed speakers have recently been voicing concern about the possibility of an unwelcome decline in inflation from these levels. I am flummoxed about those remarks – surely, Federal Reserve economists are aware of median inflation and understand that there is absolutely no evidence that prices broadly are increasing more slowly than they were last year. No evidence whatsoever. But perhaps I should not malign Fed economists when the speakers may have other agendas – for example, the desire to keep interest rates as low as possible lest asset markets correct and cause a messy situation, and therefore to find reasons to ignore any signs that inflation is already at or near their target with upwards momentum.
Our forecast for median inflation has been slowly declining since the beginning of the year, when we expected something from 2.8%-3.4%. As of September, our forecast was 2.5%-2.8%. Median CPI today rose 0.21%, pushing the y/y figure to 2.29%. That’s the highest level since the crisis, just beating out the high from earlier this year and probably signaling a further increase. Our September forecast will not be far wrong.