Thursday, April 11, 2019

March 2019 CPI Inflation

Here are the updated inflation numbers.  Non-shelter core is down to 1.1%, shelter is still at 3.2%, and core CPI inflation is at 2.0%.  As IW readers know, the reason this is important is that (1) shelter inflation is largely an imputed figure of rental values of owned homes that involve no cash transactions and, (2) in the era of Closed Access, in some important markets, these transfers have little effect on production.

This is the setup that I worry will cause the Fed to be behind the curve.  They believe that merely stopping the rate hikes will be enough.  Of course, in this context, the inverted yield curve is also a bad sign in this context.

It's not so much that 1% inflation would be an automatic disaster.  I'm not even sure it's a great recession indicator.  It's more a problem of being shielded from timely cyclical developments because of misreading the measures that should lead to shifts in policy trends.

It seems that, along with the Great Moderation, has come a peculiar Fed behavioral tick, where the Fed Funds rate is held for some time at a plateau, which is followed by a contraction.


  1. Great post. Housing is key. Housing is such a large structural impediment that, in combination with a financial industry heavily exposed to real estate, it warrants a separate chapter in macroeconomic textbooks, and a rethinking of the entire macroeconomic perspective.


    Lots of links out there on the connection between money laundering and US real estate.

    1. I'm sure it exists. But, come on. Red herring.

    2. Well...if most channels for laundering money are closed off but if real estate is left open... with globalization the ability to avoid taxes or monitoring has been amplified

    3. This isn't a binary question. It's a question of scale.

    4. I can't prove anything---such in the nature of off-the-books financial flows. But I can't think of a better place to launder money than into US real estate, both as a practical matter (no questions asked) and as an investment. And later, one can borrow against the real estate acquired to acquire more assets. The second- and third-round of acquisitions are above-board. Magnify your laundered money!