Summary (and Extension) of My Post-CPI Tweets

By: Michael Ashton | Tue, Aug 16, 2016
Print Email

Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus…buy my book about money and inflation, published in March 2016. The title of the book is What's Wrong with Money? The Biggest Bubble of All; order from Amazon here.

US Urban CPI Consumer Medical Health Insurance

US CPI Medicinal Drugs

US CPI Urban Consumer Medical Care

US CPI Owners Equivalent Rent

So, while PPI is not usually much of a predictor of CPI, in this case it gave early warning that we were about to see a weak print from the more-important indicator. But that weakness came from a couple of smaller categories. I have shown this chart a number of times before, but I think it's especially instructive this time. Compare the distribution of price changes in categories (by the weight in the category) this month…

Weight of CPI base components by y/y changes

To the same distribution from last October.

Weight of CPI base components by y/y changes last October

Note that the left tail, which holds the laggards, has more weight this time. There is not quite as much weight in the deep deflation tail, but there are more 0% and 0.5% categories. Yes, there is also one really big increase on the right although it still doesn't add up to much. The biggest piece of the upper tail is Health Insurance - which as you can tell from the chart above is fairly persistent. In short, I think there's a better chance of the lower tail reverting to the mode of the distribution than there is of the upper tail doing the same. (This is why Median CPI is a better measure).

The bottom line for markets in the near-term is that nothing about this number scares policymakers. While Dudley says that September is still on the table for an FOMC tightening, the reality is that the data will present them with no urgency - even if, as I think likely, next month's core CPI corrects for this month's weakness. And Williams' ridiculous paper gives them academic cover to ignore the fact that median CPI is at 2.5% and likely will continue to rise. Moreover, LIBOR has been rising because of changes in money market regulations, so FOMC members can argue that financial conditions are tightening automatically. In short, it is very unlikely in my opinion that the Fed hikes rates in September. Or November. Or December.

 


You can follow me @inflation_guy!

Enduring Investments is a registered investment adviser that specializes in solving inflation-related problems. Fill out the contact form at http://www.EnduringInvestments.com/contact and we will send you our latest Quarterly Inflation Outlook. And if you make sure to put your physical mailing address in the "comment" section of the contact form, we will also send you a copy of Michael Ashton's book "Maestro, My Ass!"

 


 

Michael Ashton

Author: Michael Ashton

Michael Ashton, CFA
E-Piphany

Michael Ashton

Michael Ashton is Managing Principal at Enduring Investments LLC, a specialty consulting and investment management boutique that offers focused inflation-market expertise. He may be contacted through that site. He is on Twitter at @inflation_guy

Prior to founding Enduring Investments, Mr. Ashton worked as a trader, strategist, and salesman during a 20-year Wall Street career that included tours of duty at Deutsche Bank, Bankers Trust, Barclays Capital, and J.P. Morgan.

Since 2003 he has played an integral role in developing the U.S. inflation derivatives markets and is widely viewed as a premier subject matter expert on inflation products and inflation trading. While at Barclays, he traded the first interbank U.S. CPI swaps. He was primarily responsible for the creation of the CPI Futures contract that the Chicago Mercantile Exchange listed in February 2004 and was the lead market maker for that contract. Mr. Ashton has written extensively about the use of inflation-indexed products for hedging real exposures, including papers and book chapters on "Inflation and Commodities," "The Real-Feel Inflation Rate," "Hedging Post-Retirement Medical Liabilities," and "Liability-Driven Investment For Individuals." He frequently speaks in front of professional and retail audiences, both large and small. He runs the Inflation-Indexed Investing Association.

For many years, Mr. Ashton has written frequent market commentary, sometimes for client distribution and more recently for wider public dissemination. Mr. Ashton received a Bachelor of Arts degree in Economics from Trinity University in 1990 and was awarded his CFA charter in 2001.

Copyright © 2010-2017 Michael Ashton

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com