Let me preface this by saying that I have no idea how much weight to assign to what at least on the surface sounds like a hilarious excuse for Friday’s abysmal CPI data.
In other words: this could be something profound or it could be the latest incarnation of the ubiquitous “weather” excuse for poor economic data, but it’s funny regardless which is why I’m writing this and probably why you’re reading it.
So recall that on Friday whoever wasn’t already on vacation was treated to the first decline in core CPI in more than 7 years. That was “bigly” bad for the reflation narrative and we saw just how “bigly” on Sunday evening when Treasurys got their first chance to respond (yields promptly fell just as the dollar did on Friday).
Treasurys have pared gains and the dollar has since pared losses thanks in part to comments from Steve Mnuchin, but the damage was already done in terms of the narrative.
Well on Monday, Citi is out explaining what happened with the inflation data. Enjoy.
Via Citi
Accounting for the slowdown
Core inflation decelerated 0.33 percentage points (pp) from 0.206% in February to – 0.122% in March (Figure 1 & Figure 2). 0.14 pp of the slowdown can be explained by a likely one-time drop in prices for wireless telephone plans (Figure 3). Another 0.08 pp is due to volatile components that will likely revert: apparel (-0.05 pp) and lodging away from home (-0.03 pp).
Data plan deflation?
The most surprising — and likely most transitory — feature of the March inflation report was the drop in prices for wireless telephone service (Figure 3). The BLS attempts to track pricing for a constant service level (number of minutes, amount of data etc.) Hence the fall in prices could be related to a number of wireless service providers offering enhanced service (e.g. unlimited data) for little additional cost. Wireless prices have been falling for much of the time since the index began in 1998. Continued downward price pressure from this category should be expected, but the sharp one month drop is unlikely to be repeated.
If a one-time change in data plans has that much impact, imagine what car prices can do month to month.
this is called heuristic changes; if you get more but pay the same, .gov calls this deflation. its how they figure a TV compared to 30 years ago cost less than $0. if we measured the cost of the service, telecommunications, we’d get better, more accurate inflation data. but that also would show inflation to be much higher than reported. which is where negative real interest rates come from, and are req’d after each recession. and in a way, remove $ from the general economy and ‘store’ it in asset prices, which is how the top .1% get so much of the gdp.