Thursday, September 12, 2019

August 2019 CPI Inflation

Here are the monthly inflation updates.  It will be interesting to see if the Fed treats 2% as a symmetrical target or a ceiling.  There might be an argument for treating it as a ceiling at this point in the business cycle, because employment is so strong.  But employment is a lagging indicator.  At this point, I think the Fed has reduced the potential of worst case scenarios, but I don't think they will loosen up monetary policy aggressively enough to avoid a bit of a contraction.  And the depth of the contraction mostly depends on future decisions.

In addition to the problem that these measures are backward looking, of course, there is the issue, which is always the focus of these posts, that the shelter component is not particularly related to monetary policy, since it mostly measures the estimated rental value of owned homes, and even in the case of rented homes, frequently is measuring the growth in economic rents from the ownership of a politically protected asset, which is really more of a political transfer of wealth than an effect of monetary policy.

All of these questions about monetary policy discretion would be unnecessary under an NGDP futures targeting regime.  Hopefully, we can continue moving in that direction.

The last couple of months have seen an upward movement in non-shelter core inflation.  This puts core CPI at 2.36% and non-shelter core CPI at 1.68%.

5 comments:

  1. In addition to the problem that these measures are backward looking, of course, there is the issue, which is always the focus of these posts, that the shelter component is not particularly related to monetary policy, since it mostly measures the estimated rental value of owned homes, and even in the case of rented homes, frequently is measuring the growth in economic rents from the ownership of a politically protected asset, which is really more of a political transfer of wealth than an effect of monetary policy.---KE

    Shhhhh. The important topic is labor shortages. And free trade with China.

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    1. And a disappointing number of people seem quite happy about California shutting down ride sharing as we know it. So many dragons to slay

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  2. I think it's remarkable, that if you take cpi ex shelter from US and compare it with core HICP from Eurozone, they're running at within a few tenths of a percent of eachother.

    If you look at real Non financial M1, the Eurozone is actually clearly outperforming the US.

    And yet...for Eurozone it's a nearly existential crisis of credibility of the whole monetary policy regime, requiring massive accommodative intervention and forward guidance to make doves blush.

    And the Fed meanwhile is sitting happily on its hands debating whether to lower interest rates to levels the German savers can only see wet dreams about.

    I know it's not totally same, as clearly the EZ has more slack and atleast the US treasury is running (idiotically targeted but still...) deficits unlike the misers in North Europe where ECB has to do it all.

    Draghi btw is a saint for what he did yesterday. God bless that GOAT central banker for his efforts. May the dissenters of yesterday's ecb decisions get hemorrhoids. And I hope Powell gets his head out of his butt and realize that though Trump is an ogre, he's not wrong about the rates

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  3. Also, the effects to EZ housing markets could be substantial. The Germans are about to kill their rental market with rent caps, which means people have to buy their homes instead of renting them. And ECB doesn't even consider house prices, what little they take into account, it's all rents. Which are capped. Which means ecb will be late hiking and we could be seeing rebalancing of the EZ current accounts and significant part of the whole global economy through German residential investment boom fueled by rent-cap-blinded Ecb buying any piece of paper with something in German printed on it

    I wish people spent more time comparing Ecb and Fed and less time individually. As if such a thing as independent monetary policy existed. It doesn't and yesterday was important even for Americans. We'll see the results in 2 years. They could be better than expected.

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