Fed's 2% CPI Target Too Low? 3-4% Inflation May Be the New Normal
I’m changing the way I do the monthly CPI analysis. Doing it live for an audience was always stressful, especially with the inevitable data issues from time to time.
Of course, as an inflation investor/trader, I’ll still do it live; I just don’t have an audience.
The nice part about doing it live was that the monthly report had a very similar structure to it with the same charts all of the time, and that will change.
But it also means that I can lead with the important stuff sometimes, like this month.
So I’m going to start today’s discussion of the slightly above-consensus CPI report (+0.31% on core, vs expectations for +0.25%) by saying the quiet part out loud:
They are decelerating, and they will continue to do so, but they are not going into deflation. Everyone today seems to be acting as if this is some huge shock, but it really isn’t.
The only reason to ever have thought there would be rental deflation in an environment of housing shortage was that some of the high-frequency rent indices.
These are not designed to be high-quality data; they’re data derived from a business that has been packaged as if it is high-quality data.
That suggested declines in rents and an influential article popularized the notion that you could get more information from the BLS by looking at less data.
But the cost side has never improved for landlords – in fact, it keeps getting worse – so it was hard to see how there would be a general decline in rents.
In some parts of the country, from which people are migrating away, e.g. perhaps inner cities, rents may fall.
But those people have to go somewhere. Big migration means the housing stock is now all in the wrong places, and rents go up when there’s a shortage faster than they fall when
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