Finding Tame American Inflation In Chinese Industrial Sentiment

Board, Blackboard, Economy, Inflation, Money

Trillions in “stimulus”, American consumers buying goods at a frenetic pace (in lieu of services), gasoline prices punishing, the start of favorable base effects, yet all those things couldn’t push the inflation rate much further beyond the Federal Reserve’s 2% explicit target. And remember, in order to meet the newly designed economic goals on the inflation side – average inflation targeting – monetary officials have pledged to let inflation go above by more than a little and stay above 2% for the situation to average out how they want.

According to the monthly estimates produced by the BEA (the quarterly figures were released yesterday alongside the GDP data), in March 2021 the PCE chain-type price index (seasonally-adjusted) was 2.32% more than it had been in March 2020 when it was already on its way down into GFC2 deflation. Compared to last February, prices are up almost exactly 2%, hardly the monster hiding supposedly in plain sight.

And that’s with the full weight of gasoline and energy.

Without those, or food prices (yes, I know food prices are rising; but other goods prices are not rising near as much and the prices of many services are still being heavily discounted; inflation is not one or the other, it is sustained increases in all of them together), the core PCE advanced by just 1.83% year-over-year. Further establishing my parenthetical aside, the Dallas Fed’s trimmed mean deflator last month was up all of 1.67%, indicating, on balance, only a small proportion of consumer prices rising in the way most often described.

Everything else besides categories like food must instead be rising at rates that don’t even match up to the past few years; such as 2018.

Prices continue to be exceedingly tame when, by all mainstream accounts, you’d think the consumer economy is on the cusp of double-digits like the second half of the seventies. There’s instead every reason, backed up by actual data, why bond yields haven’t budged much and, as much as it pains me to agree, Jay Powell’s view stands on a solid and reasonable basis (if only because he can and does blame COVID rather than acknowledging any part of GFC2).

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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