Friday, September 15, 2017

August 2017 CPI

This month, trailing 12 month inflation remained at about 1.7%.  Core inflation less shelter remained low: 0.1% for the month and 0.5% for the year.  Rent inflation this month spiked, which is mainly what is keeping core inflation above 1%.

On the news, it looks like the odds of a Fed rate hike in December jumped by about 15%, (currently 55%).  I appreciate that the Fed is trying to base their policy on real time data.  The problem is that they seem to have bought into the fear that they are the cause of high equity and home values.  And, they treat high rent inflation as a monetary issue, when it is a supply issue.  So, I think they are sincerely trying to follow the data.  But, the problem is that these conceptual errors bias them toward wanting to raise rates.  So, it doesn't really matter if they are trying to follow the data.  If the data follow some stochastic process, and each time there is data noise, the Fed adjusts their expectations with even a slight bias, the trend of those expectations will still be mainly an effect of that bias.  So, at some point, they will be convinced that we need another rate hike because that is their bias.  Probably just as well that it's December as opposed to next year.  We might as well get it over with if it is inevitable.


  1. Wouldn't the supply issue (and demand..) determine how inflation is spread between the different sectors, but the fed would still control overall inflation?

    1. In most cases, you would be correct. But most shelter inflation is imputed rent of homeowners. No cash changes hands. So it doesn't affect other cash-based consumption.

    2. To clarify, I don't have any problem with the BLS methodology. It is a reasonable reflection of cost of living. I just don't think it makes sense to target monetary policy to an imputed value that isn't related to cash.

  2. Sadly, it's never over with. Until it's overdone.

  3. For those of you old enough to remember "broken records," I will imitate a repeating LP now: Macroeconomists cannot fathom that housing is a macroeconomic issue.

    That makes property zoning a macroeconomic issue, vastly more important than the minimum wage.

    Tight housing markets fool central bankers, tight housing markets incentivize populations to vote socialist.

  4. Read it and wonder/

    Really, this was us, a couple generations ago?

    "Lakewood CA (SoCal) is a planned, post-World War II community.[10] Developers Louis Boyar, Mark Taper and Ben Weingart are credited with "altering forever the map of Southern California."[10] Begun in late 1949, the completion of the developers' plan in 1953 helped in the transformation of mass-produced housing from its early phases in the 1930s and 1940s to the reality of the 1950s.[10]
    WWII veterans could get home loans with no down payment and a 30-year mortgage at only 4 percent interest. On the first day of sales, on March 24, 1950, an estimated 30,000 people lined up to walk through a row of seven model houses. By the end of April, more than 200,000 people had flocked to the Lakewood Park sales office and more than 1,000 families had purchased homes (30-a-day on average). Once, 107 homes sold in just one hour. The monthly cost was only $44 to $56, including principal, interest and insurance.
    The building of Lakewood broke records and made Lakewood the talk of the nation. Empty fields became 17,500 houses in less than three years. A new house was completed every 7 1/2 minutes, 40 to 60 houses per day, with a record 110 completed in a single day.[11]"


    The CPI-math on $44 a month in 1950 is $440 in today's dollars.

    So, are living standards higher or lower in SoCal today than in 1950?

    1. All that loose credit and overbuilding! Dat's a bubble you got right dere! Those must have been dreadful times.

  5. Fast forward:

    BTW, DJ Waldie loves to talk about Lakewood and his growing up there during the housing boom.

    I thought the Lakewood story would make a good anecdote for your book.

    Sheesh, juxtaposing the Lakewood story with the Long Beach story says it all in a nutshell.