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Summary of My Post-CPI Tweets

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...sign up to receive notice when my book is published! The title of the book is What's Wrong with Money?: The Biggest Bubble of All, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to WWWM@enduringinvestments.com. You can also pre-order online.

  • +0.2% on core CPI...as expected...waiting for breakdown

  • With Median CPI running 2.5% as of last month, we should be expecting 0.2% as the "normal" core going fwd.

  • 20% was core to 2 decimal places. 1.91% y/y. [ed note: mistweeted as 0.19% first]

  • Note that the next two months, we roll off +0.08% and +0.06% from last year. This means core will be about 2.2% by dec CPI.

  • (Though there's some evidence of missed seasonality in core CPI these days, through airfares e.g.)

  • Primary Rents 3.74% vs 3.71%. OER unch at 3.09%. So Housing roughly unch at 2.12% y/y

  • Medicinal drugs 2.95%, up a bit, but Hospital Services 4.87% vs 3.28% and Health Insurance 2.99% vs 1.74%.

  • No big surprise that there's a jump in medical care services if you've looked at your bills recently! Probably not temporary.

  • core services at +2.8% mainly due to medical; core goods -0.7%, weakest since Jan.

  • Apparel -1.91% vs -1.37%, a non-negligible part of core goods.

  • New vehicles also soft: +0.14% from +0.47%. Some will say this is a VW effect, but also a general dollar effect.

  • The dollar effect, overall, is very small but in a few categories like Apparel it is large and in cars it is measurable.

  • First cut at Median, looks to me like ~0.21%, unchanged at 2.5% y/y. That's the number that matters but not due out for hours.

  • I think I mistweeted the core to 2 decimal places...was 0.20%, not 0.19%. still 1.91% y/y, I just typoed. Why? It's a mistwee. [ed note: har har!]

  • Summary is there's still no sign of deflation! The pop in medical services inflation joins housing as concerns to the upside.

  • The rise in Medical care will also tend to make PCE catch back up with core, since it has 3x the weight in PCE as in CPI.

  • I don't care about PCE, but the Fed does.

There is not a lot here to be very happy about if you want the Fed to stay on hold. The best argument for the Fed to not tighten, at this point, is that it doesn't wanna. Growth isn't great, and is weakening, and we may well enter a recession in a few months (we won't know that for a year, of course, when the NABE announces it). But that won't stop inflation from rising. Money supply growth is still rolling along at 6.7% (the highest in 15 months), but the Fed doesn't really care about that as far as anyone can tell. At this point, the argument for the Fed to move is strong, but it has been almost this strong for a couple of years (and arguably stronger, when growth was less tenuous a year or two ago). The only argument that is stronger now is that they are even further behind the curve.

However, I am still skeptical that the Fed will tighten in December. They need to walk back their rhetoric, and I expect they will do so over the next few weeks (if they do not, then I am wrong and they will tighten in December). Even if they tighten, though, I do not expect them to tighten more than a couple of token times, before slowing growth makes them 'pause' - and that will be an interminable pause.

One chart here that is the most disturbing of the report: medical care services.

US CPI Urban Consumers Medical Care Service

If you have been shopping for healthcare recently, you know that there are steep increases in insurance (which doesn't show up very much in CPI but is more meaningful in PCE) and direct services that you pay prior to using up your deductible are also rising significantly. Medical care is a mess. For a while, the reorganization of payment streams hid the actual increased costs of Obamacare, but the real costs are starting to be felt. It may be that the cost curve eventually turns down because consumers have to pay for more of the care themselves. But this hasn't happened yet, and it will take time. In the meantime, medical care services will add to housing services as the main pressures for higher prices.

It's only softness in goods prices that is holding down overall core CPI now, and that won't last forever!

 


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!"

 

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