Post by account_disabled on Feb 25, 2024 1:25:30 GMT -6
The August CPI report wasn't horrible. Admittedly, it was a bit positive, with core inflation at 0.3 percent. But the most important trends (the disinflation of rents and assets) remained in force. But there was a glimpse of inflation risks that still persist. Let's start with non-housing basic services, the Fed's inflation problem. After four months of encouraging slowdown, it edged up in August, rising 0.4 percent (dark blue line below): The main culprit was transportation services, particularly the temperamental airfare category. Transportation services, which account for 7 percent of the core CPI, rose 2 percentage points in August due to a 5 percent increase in airfares. Blame OPEC. The production cuts have helped push the price of oil above $90 a barrel, from below $70 in June. Airfares are very sensitive to the cost of jet fuel and transportation is more exposed to energy. The oil price surge, which has lost momentum, could fade. But a sustained high oil price poses an inflation risk through two channels.
One is inflation expectations. Headline inflation, which is what people experience, rose 0.6 percent in August. Oil prices are everywhere and play a huge role in people's idea of the price level. It should be noted that Job Function Email Database long-term inflation expectations are already near the upper end of their historical range. The second is the direct transfer to underlying inflation. Over a three-month horizon, a 10 percent supply-driven oil price shock raises core inflation by just 3 to 5 basis points, Morgan Stanley economists estimate in a note published yesterday. But a longer-lasting price increase “could feed through to core inflation as pricing contracts are restored and to the extent that firms have pricing power to pass higher prices on to consumers,” they write. Another risk is the extent of inflation. It's not just about transportation or energy.
Inflation Insights' Omair Sharif notes that several unexpected categories rose, including home furnishings and healthcare. Core inflation measures also rose after yesterday's data: Line chart of underlying consumer price inflation indices, annual percentage rate showing line rising badly (2) This brings us to a broader idea: for everything that can be learned by slicing and dicing data, a top-down approach should also be considered. This cycle has been inscrutable, but the reality is that spending is strong right now. Until proven otherwise, we have to assume that economic resilience matters for inflation, that high levels of corporate profits and wage growth do not correspond to an orderly return to 2 percent. We are still holding our breath on inflation. (Ethan Wu) Since the great financial crisis, people tend to worry when too much leverage builds up in any financial market, as it did in the housing finance market before.
One is inflation expectations. Headline inflation, which is what people experience, rose 0.6 percent in August. Oil prices are everywhere and play a huge role in people's idea of the price level. It should be noted that Job Function Email Database long-term inflation expectations are already near the upper end of their historical range. The second is the direct transfer to underlying inflation. Over a three-month horizon, a 10 percent supply-driven oil price shock raises core inflation by just 3 to 5 basis points, Morgan Stanley economists estimate in a note published yesterday. But a longer-lasting price increase “could feed through to core inflation as pricing contracts are restored and to the extent that firms have pricing power to pass higher prices on to consumers,” they write. Another risk is the extent of inflation. It's not just about transportation or energy.
Inflation Insights' Omair Sharif notes that several unexpected categories rose, including home furnishings and healthcare. Core inflation measures also rose after yesterday's data: Line chart of underlying consumer price inflation indices, annual percentage rate showing line rising badly (2) This brings us to a broader idea: for everything that can be learned by slicing and dicing data, a top-down approach should also be considered. This cycle has been inscrutable, but the reality is that spending is strong right now. Until proven otherwise, we have to assume that economic resilience matters for inflation, that high levels of corporate profits and wage growth do not correspond to an orderly return to 2 percent. We are still holding our breath on inflation. (Ethan Wu) Since the great financial crisis, people tend to worry when too much leverage builds up in any financial market, as it did in the housing finance market before.