Latest Inflation Numbers and Discussion

[Wile E. Coyote]

Thanks for the clarification. That sounds worse than I've seen, which is pretty bad, although gas prices are back up to about $4/gal at many gas stations.

I do not doubt it. Somehow I have almost always lived in HCOL areas. I think the most affordable was Texas (for things like food at least). But, I was not there long.

 

[Running_Man]

I suspect he left that out so you’d have something to post.

Your one key is off tone. Inflation is definitely not stubborn. Just the opposite. This Fed chart of 5 year core PCE shows a steady, sustained decline in the data of inflation.

If PCE inflation were to remain at this level the Fed could legitimately say it’s objective was achieved and the economy is back on course.

https://fred.stlouisfed.org/series/DPCCRV1Q225SBEA

So the price of food and energy are not relevant for purposes of inflation? CPI-U is up 3.1% and 0.5% in the last month before seasonal adjustments - that is a 6 per cent annual rate in the last month which was unexpectedly higher.

 

[MichaelB]

Chairman Powell is appearing today before Congress. A couple of nuggets from his testimony (here)

Inflation has eased notably over the past year but remains above the FOMC's longer-run goal of 2 percent. Total personal consumption expenditures (PCE) prices rose 2.4 percent over the 12 months ending in January. Excluding the volatile food and energy categories, core PCE prices rose 2.8 percent, a notable slowing from 2022 that was widespread across both goods and services prices. Longer-term inflation expectations appear to have remained well anchored, as reflected by a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.

We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured. Reducing policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy to get inflation back to 2 percent. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment. In considering any adjustments to the target range for the policy rate, we will carefully assess the incoming data, the evolving outlook, and the balance of risks. The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

So, the decline in the inflation rate has been substantial and widespread, but it needs to fall even more. The rate hiking cycle hit its peak, and we may begin cutting rates later this year. It depends on economy activity, which so far has been strong ad resilient.

Nothing new, reaffirming the outlook we had at year end.

 

[Chuckanut]

Chairman Powell is appearing today before Congress. A couple of nuggets from his testimony (here)



So, the decline in the inflation rate has been substantial and widespread, but it needs to fall even more. The rate hiking cycle hit its peak, and we may begin cutting rates later this year. It depends on economy activity, which so far has been strong ad resilient.

Nothing new, reaffirming the outlook we had at year end.

The 80/20 rule. The first 80% is the easy part. The last 20% is the hard part.

Getting inflation from the area of 3% to 2% might take longer than going from nearly 10% to the area of 3%.

 

[MichaelB]

The JOLTS data was released today (see here) This tracks the labor market. Hires, quiet and separations are now back to the same levels of January 2019. These are all tracked and measured numbers, not surveys. The jobs openings number is still very. high, but that number is, at best , fuzzy.

A stable labor market usually means wage pressures are not strong, which in turn support a lower rate of inflation. Another positive sign inflation is controlled.

 

[Montecfo]

The JOLTS data was released today (see here) This tracks the labor market. Hires, quiet and separations are now back to the same levels of January 2019. These are all tracked and measured numbers, not surveys. The jobs openings number is still very. high, but that number is, at best , fuzzy.

A stable labor market usually means wage pressures are not strong, which in turn support a lower rate of inflation. Another positive sign inflation is controlled.

The decline in Quits and the Quits rate from December to January is a good sign.

 

[Montecfo]

A mixed jobs report, unemplyment rises

The February jobs report was a mixed bag. If you just read the headline of 275K new jobs, you could miss the whole story. December and January revised downward by a total of 167K jobs. When you combine those two figures, you get just 108K new jobs, versus the 198K expected.

(as an aside, these dramatic revisions virtually evey month are because response rates have fallen dramatically since the pandemic. So BLS fills in with an estimate and it seems they tend to estimate high. then more data trickles in and triggers a revision.)

In the companion household survey, the unemplyment rate ticked up to 3.9%, the highest rate in two years and much higher than the 3.7% expected. The HH survey showed jobs declined by 184K jobs. Wage growth was just 0.1% for the month as compared to 0.2% expected, which suggests a weakening labor market. Cutting the other way, hours worked rose modestly.

Overall a mild positive for inflation and for lower rates In my view.

https://www.cnbc.com/2024/03/08/jobs-report-february-2024-us-job-growth-totaled-275000.html

 

[explanade]

Supposedly a June rate cut more priced in as a result of the jobs report.

 

[GenXguy]

Things aren't looking good on the inflation front.

https://www.cnbc.com/2024/03/11/lon...ossible-trouble-for-the-fed-survey-shows.html

Long-term inflation expectations rise, spelling possible trouble for the Fed

• At the three-year range, expectations rose 0.3 percentage point to 2.7%, while the five-year outlook jumped even more, up 0.4 percentage point to 2.9%.
• The indications are well ahead of the Fed’s 2% goal for 12-month inflation, indicating that the central bank may need to keep policy tighter for longer.

 

[Gumby]

CPI 2/29/24 = 310.326

Annualized inflation rates (<1yr not seasonally adjusted)

Last 1 year > + 3.15%
Last 9 mos > + 2.72%
Last 6 mos > + 2.15%
Last 3 mos > + 4.72%

Still happy with the overall trend.

Topline CPI last 15 months

Dec 296.797
Jan 299.170
Feb 300.840
Mar 301.836
Apr 303.363
May 304.127
Jun 305.109
Jul 305.691
Aug 307.026
Sep 307.789
Oct 307.671
Nov 307.051
Dec 306.746
Jan 308.417
Feb 310.326


https://www.bls.gov/news.release/cpi.nr0.htm

 

[Montecfo]

At least it is an improvement over January. Supercore up 0.5% versus 0.8% in Jan. That January figure resulted in a lot of hand-wringing.

The flawed, laggy shelter readings still driving this despite plenty of evidence that rents are moderating.

Market reaction positive as far as stocks. 10 year yield up somewhat but remaining within the recent range.

 

[GenXguy]

Disappointing news on higher than expected inflation. Core inflation was up 3.8% year over year. That's 190% of the target inflation rate. The fed shouldn't even be considering rate hikes at this point, and it looks like they won't be in the next month.

I noticed rents are really climbing around here.

 

[Montecfo]

Just to be clear there actually is no "target" for CPI.

The target is for PCE which was at 2.4% for January. So called core PCE was at 2.8%.

These are the Fed's preferred measures.

 

[GenXguy]

Just to be clear there actually is no "target" for CPI.

The target is for PCE which was at 2.4% for January. So called core PCE was at 2.8%.

These are the Fed's preferred measures.

That was core CPI, not CPI.

I've mentioned at least a few times in this thread specifically that the Fed's target of 2% was core PCE. Year over Year inflation, in general, is still running well above that and remaining sticky and unexpectedly high. Core CPI 3.8% is certainly running too hot.

https://www.early-retirement.org/fo...rs-and-discussion-114292-109.html#post2970206
https://www.early-retirement.org/fo...bers-and-discussion-120454-5.html#post3036698

 

[Dtail]

That was core CPI, not CPI.

I've mentioned at least a few times in this thread specifically that the Fed's target of 2% was core PCE. Year over Year inflation, in general, is still running well above that and remaining sticky and unexpectedly high. Core CPI 3.8% is certainly running too hot.

https://www.early-retirement.org/fo...rs-and-discussion-114292-109.html#post2970206
https://www.early-retirement.org/fo...bers-and-discussion-120454-5.html#post3036698

So why is the market up today?

 

[GenXguy]

So why is the market up today?

It was a wait and see to make sure it wouldn't be worse. But the market it still down from highs last week.

 

[Montecfo]

That was core CPI, not CPI.

I've mentioned at least a few times in this thread specifically that the Fed's target of 2% was core PCE.

Whenever you mention any inflation measure you talk about it being far above the 2% "target" as if CPI core CPI etc are tied to the Fed's target.

I am glad you are in fact aware that PCE and CPI are different. If the Fed had a CPI target it would be higher than the PCE target.

There is a lot of talk now about the target being too low. Perhaps it will end up getting reset at 2.5% while we are right shoring and dealing with a housing shortage, or so the thinking goes.

I am ok with the Fed continuing its restrictive policy for now but they will loosen at the first whiff of trouble with jobs.

And that is probably the right thing since inflation remains under control and likely continuing lower-my view.

 

[GenXguy]

There is a lot of talk now about the target being too low. Perhaps it will end up getting reset at 2.5% while we are right shoring and dealing with a housing shortage, or so the thinking goes.

I would hope for it to get much lower than 2.5%. After the run up in inflation in recent years, if anything, it will take a lot of years BELOW 2% to make up for what we have had.

And as I referenced to my previous posts, I am certainly aware of the different metrics and which one the fed targets.

 

[Gumby]

I think you suffer from recency bias. The period from 2012 to 2020 of 2.9% or less inflation rates was quite unusual in the economic history of this country. When I graduated from college in May 1981, the CPI was 89.8. As of the end of February 2024, it was 310.326. The compound annual inflation rate over those 42.75 years has been 2.94%.

 

[GenXguy]

I think you suffer from recency bias. The period from 2012 to 2020 of 2.9% or less inflation rates was quite unusual in the economic history of this country. When I graduated from college in May 1981, the CPI was 89.8. As of the end of February 2024, it was 310.326. The compound annual inflation rate over those 42.75 years has been 2.94%.

Yes, indeed, I've always felt inflation was too high, even when it was supposedly "low" according to most people. But then, I've always seen higher inflation on prices than the government figures, as many others have stated as well. But what's happened in recent years has been even worse. So sure, I would like to see much lower inflation for some years to come.

 

[Gumby]

In my retirement planning, when I ran a model with a fixed inflation rate, I never used less than 3% annual inflation. Anyone who counts on lower than that is in for a rude awakening.

 

[jimbee]

 

[GenXguy]

In my retirement planning, when I ran a model with a fixed inflation rate, I never used less than 3% annual inflation. Anyone who counts on lower than that is in for a rude awakening.

I agree. My largest expenses actually seem to go up the most, like my car insurance and homeowners insurance, and property taxes. I'm not under threat of running out of money, but it cuts into my discretionary spending.

 

[Wile E. Coyote]

Personally, I do not see how we can see a 20 to 25% jump (what they called 9%) and then imagine 2.5% a year later and call all clear on that. So, that's why they aren't I'd imagine.

 

[Chuckanut]

Getting down to that 2% level is going to be a challenge. I have always used 3% as an inflation rate. Federal spending is still out of control adding well over a trillion dollars a year to the deficit. I would love 2% inflation, but I just can’t see it in the next year or two. I am preparing for 3+% inflation for the rest of my hopefully long life. I hope I am wrong.

I do think that people need to realized that our current government insured savings rates are in a much more normal range today than the 0.2 to 2 percent range of five years ago.