Below is a summary of my post-CPI tweets.

• core CPI +0.21%, higher than expected. y/y core to 1.89%.
• core services up to 2.7%; core goods remains at -0.5%
• The rise in core CPI #inflation is no surprise to anyone watching Median. But a surprise to many apparently.
• Owners’ Equiv (3.09% from 3.02%), Primary Rent (3.71% v 3.62%), Lodging Away from Home (1.94% v 1.69%).
• Overall housing 2.12% vs 2.02% last month. All in keeping with established trends and unsurprising; this has further to go.
• Medical Care approx unch (2.45% y/y); Recreation unch (0.64%); Apparel down slightly.
• within Medical, medical drugs decelerated to 2.9% from 3.5%, but professional services and health insurance counteracted that.
• Core #inflation ex-housing up to 1% vs 0.9%. That’s low but highest it has been since last July.
• Worth pointing out: derivatives markets are pricing core CPI to be below 1.5%, compounded, for 8yrs. It’s above that now.
• …and implied core for the next year is below zero (even after today’s rally so far). Core deflation is not happening.
• US (headline) #Inflation mkt pricing: 2015 0.5%;2016 1.3%;then 1.6%, 1.7%, 1.7%, 1.8%, 2.0%, 2.1%, 2.2%, 2.3%, & 2025:2.3%.
• So Fed, what do you believe? the market or your own lying eyes? They’re focused on headline now so their deflation worries persist.
• This is a fun chart. Note that about half of the weight of CPI is inflating >3%. But 12% is deflating.

• That’s why median matters.
• Warning: Back of the envelope on Median CPI suggests chance of +0.3%; would imply Median would go to post-crisis high near 2.5%.
• My back-of-the-envelope lacks seasonal adjustment for regional housing indices but it has been pretty close recently.
• Cleveland Median CPI +0.3%, +2.5% y/y. QED.
• inflation is now officially higher than it has been since 2009, on the way down.
• And Fed to continue to do nothing about it.
• Median CPI thru this month. In line with what we have been forecasting. Any questions?

At 2.5%, median inflation is not only at or above the equivalent level on core PCE, given historical spreads, but also is clearly rising as the chart above shows. However, this Fed believes very strongly that inflation cannot go up if the economy is slowing, despite generations’ worth of counterevidence (the 1970s, anyone?). The economy does seem to be slowing, not just domestically but globally. Therefore, whether the Fed thinks Median CPI is relevant or not, they will continue to focus on headline inflation numbers that flirt with deflation because of the drastic decline in energy quotes. If they talk about the central tendency of inflation, they will talk about core PCE (and ignore the question of whether the slowdown in medical care which shows up there is illusory or transitory). If pressed, they may mention core CPI, which is still below target because of the “tail” categories.

You will not hear them talk about Median CPI at 2.5% and rising.

Inflation is headed higher. How much higher, and how quickly, depends on several factors such as how quickly the Fed raises rates (I have already said this is unlikely, but note that I think raising rates would initially accelerate inflation) and whether bank lending slows for reasons unrelated to monetary policy. But the sign is clear. Inflation is headed higher.