Data Watch

Looking at inflation as a “price phenomenon”

That´s what many analysts do, going into the details of price moves from pickles to trucks. The Fed many times falls into the same trap, but correctly restrains its “hiking impetus”: “All participants expected inflation on a 12-month basis to move up in coming months. This expectation partly reflected the arithmetic effect of the soft readings on inflation in early 2017 dropping out of the calculation; it was noted that the increase in the inflation rate arising from this source was widely expected and, by itself, would not justify a change in the projected path for the federal funds rate.”… Read More

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The Employment Report: Strong, Solid, or just Dull?

The report was weaker than expected. However, nothing in this report will cause the Fed any concern about their prevailing view of the economic picture in the US. Lower than expected jobs numbers were met by expected hourly earnings growth. What matters is that the predominant view at the Fed [although misguided] is that the economy is at or below the level of employment that keeps inflation in check. The charts depict what has been going on for the past two years, coinciding with the period the Fed became more obstinate about tightening. The top chart shows that during the… Read More

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Bad Monetary Policy: small effect on inflation, strong impact on real growth

Some love to “data mine” for inflation. David Rosenberg, for example, twitted: Shh…don’t tell the Fed that its beloved core PCE deflator is running at 2.3% SAAR over the past 6 months (hottest in 7 years) and that the 3-month trend has shot up 2.8% — we haven’t seen this since Nov 2007. Yet another in the long list of late-cycle indicators. The fact is that for the last quarter century inflation has been tame and contained, early or late cycle. The panel below illustrates the implications of a bad monetary policy, here taken to mean a lower than ideal… Read More

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Industrial Production - An oil & auto tale

In February, industrial production had a banner month, rising far above expectations. What´s going on? The story of industrial production over the last few years is quite straightforward. For the first five years following the end of the great recession, industrial production was rising. In late 2014, growth fizzled and industrial production began to contract. In late 2016, we observe what came to be known as the “Trump bounce”. That proved to be temporary, and by mid-2017, industrial production was again trending down. Then the late summer of 2017 witnessed the big storms (hurricanes). Industrial production stepped-up to satisfy replacement… Read More

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Risk of overheating? Tailwinds? In fact, quite the contrary

The story told by the consumer doesn´t leave much doubt that the economy is on a “cooling streak”. The chart shows that retail sales (just as several other statistics) captured the burst of activity triggered by the cleanup and recovery from the severe storms along the Gulf Coast in late summer 2017, with growth in sales strongly positive in September-November. That, however, has long gone, with a string of three negative rates in December/17-February/18. Today´s release gave rise to significantly negative market reactions, with stocks, the dollar and long-term yields falling. Overall consumer spending, available to January, also tells a… Read More

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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… Read More

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What a difference 0.1% makes

Five weeks ago, when the January employment report was released, the stock market took a dive, supposedly triggered by a wage increase 50% above expectations (0.3% versus 0.2% expected). Today´s release, which showed a robust employment gain of 313 thousand, more than 50% above the 200 thousand expected, but with wage growth coming in 50% below expectations (0.1% versus 0.2% expected) was accompanied by a strong rise in the stock market. Meanwhile Fed BoG members Powell and Brainard mouthed strong words for more than three rate hikes this year. Powell mentioned, “avoid overheating” while Brainard said “winds” had changed from “Head” to… Read More

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“Inflation (not the Russians) is coming”

There isn´t much doubt or debate about it, and the Fed is poorly prepared! Greg Ip: Inflation is going to head up this year — on that there isn’t much debate. Carmen & Vincent Reinhart: Major central banks’ fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next – the battle against too-high inflation. In his Testimony, Powell said he wants to see inflation go back to 2%, but does not want to risk “overheating” the economy.… Read More

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My “funny inflation”

Resulting in “funny” headlines (with time stamps): Barron’s 9:26 AM: “Dow Drops as Too Much Inflation Rocks Stocks.” CNN Money 10:56 AM: “Stocks Shrug Off Inflation Data” The core CPI was 0.3% month-on-month, higher than expected (0.2%) and the highest in two years. Since it wasn’t as low as analysts were anticipating, that “confirms” the “boom hysteria”. David Beckworth put it succinctly: My prediction: Fed will be emboldened to raise rates & talk up more rate hikes. This tightening will cause inflation to drift back below 2%. And Fed officials will wonder once again why inflation remains low.

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