Summary of My Post-CPI Tweets

By: Michael Ashton | Wed, Mar 15, 2017
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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.

M/M Core CPI

CPI: Housing and Medical Care

CPI: Apparel, Education, Recreation and Other Good and Services

10yr CPI Swaps

Weight of Components

Let's face it. While this month's CPI held some intrigue because of last month's surprising spike, nothing about the figure was likely to change the outcome of today's FOMC meeting and probably not the tenor of the statement or post-meeting presser. So, in that sense, this was a much less-significant report than last month's release.

At the same time…let's not lose sight of the fact that this was still an above-consensus CPI report. While the consensus was broadly correct that some of the jumps in core goods categories from last month were one-offs, and at least partially retraced this month, it's still the case that y/y core inflation is going to keep rising through the summer merely on base effects. If the Fed wants to be hawkish and tighten more than the market currently expects (I think that nothing could be further from the truth, with Yellen at the helm, but she seems to dislike President Trump enough that she might forget some of her dovish leanings), then they will continue to have cover from inflation reports for a while.

Going forward from that, there are two inflation questions that will be resolved: (1) Will core goods recover and rise, indicating a broadening of inflation impulses that could produce a longer-tail upside? And (2) will housing inflation flatten out or decline since rent inflation is currently rising faster than even our most-generous models? If it does, then core inflation might stabilize near the current level, or even decline.

I have trouble figuring out what the mechanism would be for inflation to flatten out at these levels, from the macro-monetary perspective. Money growth remains brisk and higher interest rates should eventually goose velocity. I don't see much prospect of money growth rolling over while banks are neither capital- nor reserve- constrained. And it's hard to see interest rates heading back down while central banks shift into less-accommodative stances. I have more confidence in the macro-monetary ("top down") model at longer time frames, and more confidence in the bottom-up analysis at shorter time frames. And for years they've told the same story: inflation should be rising, and it has. But there is a conflict between these perspectives that is coming later this year. How it resolves will be the story of the next 3-6 months.

 


P.S. Don't forget to buy my book! What's Wrong with Money: The Biggest Bubble of All. Thanks!

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.

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