Thursday, June 18, 2015

May 2015 Inflation

It looks like CPI measures across the board took a breather this month.  Year-over-Year measures are moving generally sideways.  Core inflation is at 1.7%, which is a combination of Shelter inflation running at about 3% and Core-minus-Shelter inflation, running at about 1%.

This has been the pattern since the mid-1990s, except for the 2003-2005 and 2012-2013 periods, which were the only periods where aggregate housing supply was expanding strongly enough and monetary policy was accommodative enough for housing inflation to fall and non-housing inflation to rise to the ostensible target of 2%.

Constrictions on building in the major California and Northeastern metropolises mean that target-level monetary policy is associated with significant home price appreciation (10% and higher).  It seems to me that until the large metro areas fix their housing problems, it will be difficult for monetary policy to hit our targets over the objections of those worried about home prices.


  1. Kevin E---your core-minus-shelter insights are very valuable.
    I think we are getting to an idea, and that is the Fed will hsve to asphyxiate the economy to hit targets, thanks to housing restrictions.
    But every nice place to live in the US has criminalized new housing construction.

    1. Thanks, Benjamin.

      Tyler Cowen talks about stagnation and the end of low hanging fruit. But, how many ways do we damage ourselves with needless supply constraints in so many areas?