Below is a summary of my post-CPI tweets.

• Last CPI of 2016…fire it up!
• Core +0.23%, a bit higher than expected. Market was looking for 0.16% or so.
• y/y core CPI rises to 2.21%. The core print was the second highest since last Feb.
• For a change, the BLS has the full data files posted so brb with more analysis. Housing subcomponent jumped, looking now.
• Just saw this. Pretty cool. Our calculator https://www.enduringinvestments.com/calculators/cpi.php … pretty cool too but not updated instantly.
  • BLS-Labor Statistics @BLS_gov: See our interactive graphics on today’s new Consumer Price Index data http://go.usa.gov/x9mMG #CPI #BLSdata #DataViz
• As I said, housing rose to 3.04% from 2.90% y/y. Primary Rents jumped to 3.96% from 3.88%; OER 3.57% from 3.54%.
• Household energy was also higher, so some of the housing jump was actually energy. But the rise in primary rents matters.
• Will come back to that. Apparel y/y slipped back into deflation (dollar effect). Recreation and Education steady. “Other” up a bit.
• In Medical Care, 4.07% vs 3.98%. That had recently retraced a bit but back on the + side. Drugs, Prof. Svcs, and Hospital Svcs all +
• Medicinal drugs. Not a new high but maybe the retracement is done.

• Core services up to 3.1% from 3.0%; core goods -0.6% vs -0.7%.
• That’s consistent with our view: stronger USD will keep core goods in or near deflation but it shouldn’t get much worse.
• The dollar is just not going to cause core deflation in the US. Import/export sector is too small.
• Core ex-housing rose to 1.20% from 1.12%. Still not exactly alarming!
• Not from this report, but wages are worrying people and here’s why:

• However, wages tend to follow inflation, not lead it. I always add that caveat. But it matters for Fed reaction function.
• Next few months are the challenge for renewed upward swing in core CPI – Jan and Feb 2016 were both high and drop out of the y/y.

• Early guess at Median CPI, which I think is a better measure of inflation…my back of envelope is 0.24% m/m, 2.61% y/y…new high.
• CPI in 4 pieces. #1 Food & Energy (about 21%)

• CPI in 4 pieces. #2 Core Goods (about 20%)

• CPI in 4 pieces. #3 Core Services less Rent of Shelter (about 27%)

• CPI in 4 pieces. #4 Rent of Shelter (about 33%)

• This is why people are worried re’ inflation AND why people dismiss it. “It’s just housing.” Yeh, but that’s the persistent part.
• Scary part about rents is that it’s accelerating even above our model, and we have been among the more aggressive forecast.
• OK, that’s all for this morning. Anyone going to the Inside ETFs conference next week? Look me up.

We end 2016 with the outlook in limbo, at least looking at these charts – unless January and February print 0.3% on core inflation, core CPI will be hanging around 2% for at least the next few months. Median inflation is more worrisome, as it will probably hit a new high when it is reported later today, but it doesn’t get the ink that core CPI or core PCE gets.

To my mind, the underlying trends are still very supportive of a cyclical (secular??) upswing in core inflation. Here’s a summary of two of the pieces that people care about a lot. Housing is much bigger, but slower; Medical Care is more responsive, but smaller.

I suspect that chart is enough to keep most consumers jittery with respect to inflation, but as long as retail gasoline prices stay below $3/gallon there won’t be much of an outcry. But that doesn’t matter. M2 money growth accelerated throughout 2016 as the economy improved, and ended the year at 7.6% y/y. Interest rates are rising, which will help push money velocity higher. It’s hard to see how that turns into a disinflationary outcome.