Inflation low for technical reasons for tenth year in a row


JP Morgan economists do a pretty good job of relating the individual price detail in the PPI and CPI releases into an estimate of the core PCE deflator for the same month. This month, they estimate that the core will have been up 0.07% in December. The main technical factors holding down core inflation last month were medical services prices, airfares, and the fact that inflation is low. Snigger snigger.

Snark aside, I would have expected inflation to firm by now, slightly. So while today’s guess from JPM is not news on a day to day basis, developments here are information to me on a half year to half year basis. At the margin, continued sub-target  inflation favors continued economic expansion.  I know better than to try to relate it to fixed income, which still offers return-free risk, to cite Jim Grant’s one good point.

During this expansion, the core PCE deflator has risen at an average rate of just over 1.5% or about 50 bps below the Fed’s objective.  (Same for headline, not shown). The implication of this is not that the Fed should necessarily make up for bygones.  I do not have a strong view on that either way, and find it funny that many others get so passionate about it.  My point is more mundane, as usual: the Fed keeps missing the same way. They might want to work up a plan to stop doing that.  Maybe consider how an average works. I figure they will.

Some will say, oh, but the deflator is not a correct measure of inflation. Obviously, you are right! There is no “correct” measure of inflation. But the deflator is the wrong measure to which the Fed has, understandably, made a commitment regarding the long-term rate of change of.  Grammar aside, it is not the sort of think you or they should ignore, IMHO.

Sorry I have been blogging trivia and politics. I am working on a more serious piece on MMT. The main tenet of MMT is that helicopter money all the time is a good idea. I exaggerate for humour value.  Laughing? Anyhow, you can just imagine my opinion.

Donald Trump is a very bad person and disastrously bad idea by USA. If you do not know that, or if you are not acting on that, then you are dumb or weak respectively.  Just want to stay clear on that, in case you thought I had changed my mind.

Also, who cares what pro bono banking patriot Jamie Dimon thinks? I see the suck ups continue breathlessly to report his every deep thought, most recently on Europe.  Apparently, if Europe does not reform, then the currency union could be put at risk. Who knew? But why would they cite Jamie Dimon. He is a patriot, as he mentions all the time. Not sure he even cares about Europe.

In other news, Lloyd Blankfein says that if Trump is against trade, then that’s it, Lloyd Blankfein then will just not like Donald Trump. So deep.  Meanwhile, Ray Dalio worries that populism might incline people to be mean to multinational corporations. These guys are really focused on the big issues. Please keep us up.