tag:blogger.com,1999:blog-1110014885778996459.post3274909425295355687..comments2024-03-19T00:14:05.122-07:00Comments on Idiosyncratic Whisk: July 2019 Yield Curve UpdateKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-1110014885778996459.post-48525707536645792942019-08-14T04:29:11.246-07:002019-08-14T04:29:11.246-07:00https://ihsmarkit.com/research-analysis/ranking-me...https://ihsmarkit.com/research-analysis/ranking-metropolitan-business-costs.html<br /><br />Cities with higher costs growing faster...Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-53379074894475475992019-08-13T14:07:38.047-07:002019-08-13T14:07:38.047-07:00Thanks. I'll check those links out when I hav...Thanks. I'll check those links out when I have time.<br />Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-56899748261560980422019-08-13T11:07:04.272-07:002019-08-13T11:07:04.272-07:00Thank you! Here I found this:
"US CPI and th...Thank you! Here I found this:<br /><br />"US CPI and the euro area HICP <br />differ in terms of their coverage of housing costs. The former includes owner-occupiers’ costs <br />for shelter in the form of imputed rental payments, while the latter does not cover the shelter <br />costs of owner-occupied housing.<br /><br /> Owners’ equivalent rents constitute around 24% of the cost of <br />living covered by the US CPI. By contrast, actual rents account for around 6% of the basket of <br />both the US CPI and the euro area HICP."<br /><br />source: https://www.ecb.europa.eu › ...PDF<br />Euro area house prices and the rent component of the HICP<br /><br />shorturl.at/dBKT5<br /><br />This from 2016: Assessing the impact of housing costs on HICP inflation<br /><br />shorturl.at/cLRZ0<br /><br />"After falling to a little under 1.5% in 2010, rental <br />inflation declined further to around 1.0% in 2015, well below the long-term average of <br />1.7% (see Chart A). Developments in rental prices over the past few years have therefore not supported services inflation, but been an integral part of its decline."<br /><br />Note towards the end about heterogeneity within Eurozone. Real estate is local (capital markets global!)<br /><br />And recent developments:<br /><br />https://www.ecb.europa.eu/pub/economic-bulletin/focus/2019/html/ecb.ebbox201904_05~79baf840ca.en.html<br /><br />It therefore might be true that EZ monetary policy was too tight vs Fed (hicp understated shelter _deflation_), but is now more accommodative. Implies ECB monetary policy will become relatively more accommodative if shelter (rents, house price increase) remains understated. ECB then is going to be slower hiking rates. Fed faster both ways. Interesting dynamics since they are 2 sumo wrestlers in hot tub, the other stands up, the other goes down.<br /><br />(Shelter inflation in EZ might also be understated because of widespread rent controls. In those cases the inflation might appear in house prices in countries with rigid supply, cheap credit, low unemployment. And that's exactly what happened/happens in Netherlands, Germany, Sweden...).<br /><br />Real non financ M1 in EZ has risen solidly for some time now, credit flowing to households, vs in usa not so much, implying looser policy in EZ.<br /><br />Hypothesis: Fed misread signals badly last year, possibly because of _technical_ choices made in calculating inflation index originally. The difficulties constructing single price index that takes into account idiosyncracies were discussed in links above. It's always a compromise. But maybe ECB overall chose better than the Fed?<br /><br />Sorry for writing this long.fe2plushttps://www.blogger.com/profile/15540752507603047005noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-47825660587123016962019-08-13T09:04:33.645-07:002019-08-13T09:04:33.645-07:00I'm not informed enough on the ECB to have a s...I'm not informed enough on the ECB to have a strong opinion. My initial reaction to your comment is that lower Eurozone NGDP growth and inflation suggest that ECB policy is tighter than US policy, not looser. On the other hand, if those measures are shaded down in Europe relative to the US because of your point about the way they measure rent inflation, then maybe ECB policy isn't as tight as it seems compared to US policy. That's an interesting point. Thanks for the input.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-76204666310114393512019-08-13T08:05:23.416-07:002019-08-13T08:05:23.416-07:00What do you think about ECB's policy in compar...What do you think about ECB's policy in comparison? Germany's yield curve hasn't inverted, but it's totally negative.<br /><br />My impression is that EZ's monetary policy is actually functioning reasonably, but they constantly fight against tight fiscal policies. And in US it's the reverse... if I'm correct, I wonder if looser monetary policy in EZ is because they only count actual rent in inflation and its a smaller part of inflation basket...so ECB doesn't get signals mixed (mistake shelter price increases for inflation that should be corrected with higher rates when it's really supply problem - and ECB almost just ignores shelter).<br /><br />It would be sad if such technical choices led to millions of Americans be without homes. I doubt even the miserliest German government could achieve such unnecessary deprivationfe2plushttps://www.blogger.com/profile/15540752507603047005noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-23918287464174481192019-08-10T11:36:58.297-07:002019-08-10T11:36:58.297-07:00Yes. It puts the question of regulation or federal...Yes. It puts the question of regulation or federal management of the nominal economy in an odd light. People do really need to be protected from themselves. Yet, the experts can't even agree on the basic building blocks that would be required to provide that protection.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-74816648401482205962019-08-09T17:46:06.482-07:002019-08-09T17:46:06.482-07:00Sometimes I pull out what hair I have left when re...Sometimes I pull out what hair I have left when reading even the best of financial media. One can read sentiments the years of easy money by major central banks have created this situation of negative interest rates.<br /><br />Or, as you said, long-term rates have come down as they expect the Fed to be easier.<br /><br />And then, a dangerous misdiagnosing. One can believe from reading financial media that that the global slowdown in economic expansion is due to Trump's tariffs.<br /><br />Sometimes pundits decry the public as uninformed. That is the least of it.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com