March 2019 CPI Inflation

Apr. 12, 2019 5:21 AM ETTBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, DLBS, PLW, DTYS, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, SPTI, GSY, TYD, DTYL, EGF, VUSTX, TYBS, DTUS, TUZ, DTUL, DFVL, TAPR, DFVS, TYNS, RISE, FIBR, GBIL, HYDD, UDN, USDU, UUP, RINF1 Like
Kevin A. Erdmann profile picture
Kevin A. Erdmann
196 Followers

Summary

  • Non-shelter core is down to 1.1%, shelter is still at 3.2%, and core CPI inflation is at 2.0%.
  • This is the setup that I worry will cause the Fed to be behind the curve. They believe that merely stopping the rate hikes will be enough.
  • It's not so much that 1% inflation would be an automatic disaster. I'm not even sure it's a great recession indicator.

Here are the updated inflation numbers. Non-shelter core is down to 1.1%, shelter is still at 3.2%, and core CPI inflation is at 2.0%. As IW readers know, the reason this is important is that (1) shelter inflation is largely an imputed figure of rental values of owned homes that involve no cash transactions and, (2) in the era of Closed Access, in some important markets, these transfers have little effect on production.

This is the setup that I worry will cause the Fed to be behind the curve. They believe that merely stopping the rate hikes will be enough. Of course, in this context, the inverted yield curve is also a bad sign.

It's not so much that 1% inflation would be an automatic disaster. I'm not even sure it's a great recession indicator. It's more a problem of being shielded from timely cyclical developments because of misreading the measures that should lead to shifts in policy trends.

It seems that, along with the Great Moderation, has come a peculiar Fed behavioral tick, where the Fed Funds rate is held for some time at a plateau, which is followed by a contraction.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Kevin A. Erdmann profile picture
196 Followers
As a private investor, I have concentrated on deep value and turnaround microcaps, where illiquid trading markets and reputational risks allow mispricing to be occasionally extreme. Over the past few years, I have developed a radical new macro-level view of the economy. I have found that the housing bubble was not caused by reckless lending or over-investment in housing. Rather, it was caused by a shortage of housing in several important urban markets. The subsequent bust and financial crisis were not inevitable collapses of a demand bubble, but were avoidable and self-imposed consequences of a moral panic about building and borrowing. The key factors providing insights into financial markets going forward are related to the shortage of housing and the disastrous public policy responses to it. This has led to high rent inflation, perpetually tight monetary policy, a divergence of yields between US housing and bond markets, very low rates of new construction, and labor immobility/stagnation.Two books are in the works on the topic.  Here is the first:https://rowman.com/ISBN/9781538122143/Shut-Out-How-a-Housing-Shortage-Caused-the-Great-Recession-and-Crippled-Our-EconomyI am currently a Visiting Fellow at the Mercatus Center at George Mason University.
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