On the inflation front, it´s back to “peace on earth”

After January´s 0.3% month-on-month Core CPI “inflation shock”, the highest in 12 years, OMG, in February, however, “angels’ didn´t fear to tread”.

The charts for Core CPI inflation in the past twelve months and the previous twelve months show all the excitement was misplaced, with inflation for the past 12 months even more subdued than before.

Nevertheless, many instead of analyzing inflation, do “price analysis” (by product category/subcategory and even individual items). When you get to the second paragraph you´ve already forgotten what was said in the first.

When some price falls, it´s usually “transitory” (or one-off). When there´s a price increase it´s viewed as “permanent”. Even the Fed falls into the trap of thinking inflation is a price phenomenon.

Even those who look at inflation take an accounting view. For example, inflation will rise because, even if next month´s print is 0.2%, since the negative print of March 2017 will “drop out”, year-on-year inflation will rise to 2.1%!

Given continued subdued inflation and wage growth, it´s not unreasonable to think that the Fed will have to backtrack on its newfound “hawkish stance”, no matter if unemployment continues to be low or even fall further.


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