economy

CPI Is Solid, But Subdued Core Helps Make Case For Accommodation

Unlikely to move the needle.

For the second straight month, consumer prices rose more than expected.

The headline CPI rose 0.3% MoM in November, ahead of the 0.2% gain consensus expected. The MoM core print is 0.23%, in line.

YoY, the headline gauge rose 2.1%, more than the expected 2% bump, while core was steady at 2.3%.

“Increases in the shelter and energy indexes were major factors in the seasonally adjusted monthly increase of the all items index”, the BLS said. Medical care, recreation, and food also contributed.

Although the headline print is hotter than anticipated, it’s hard to imagine this affecting the Fed’s decision calculus going forward. As such, it’s unlikely to move market pricing.

Today’s data comes on the heels of Friday’s benign average hourly earnings numbers, which were reasonably subdued, despite the blockbuster jobs report.

Jerome Powell has made it abundantly clear that it would take a serious acceleration in inflation to force the Fed to consider rate hikes anytime soon. He was explicit about that during the October press conference, and he’ll probably reiterate it on Wednesday, if pressed.

If anything, the fact that core CPI rose just 0.2% for a second consecutive month will likely bolster the FOMC’s confidence that the US is nowhere near some kind of tipping point beyond which prices might abruptly surge, catching policymakers behind the curve.

Besides, core PCE is still soft and has stubbornly refused to rise sustainably above the Fed’s 2% target.


 

4 comments on “CPI Is Solid, But Subdued Core Helps Make Case For Accommodation

  1. Lance Manly

    PCE inflation is chained. It assumes you will drop your standards if what you like rises in price. Not to mention hedonic price adjustment means either one is a measure of the purchasing power of the dollar, as opposed to true cost of living. People on fixed incomes start not to be able to afford stuff because of increased “quality” of items purchased allows the price to go up even though it is not counted as inflation due to the adjustment.

    It will be interesting to seem median cpi from the cleveland fed, it has shown the trend well since the GFC https://www.clevelandfed.org/our-research/indicators-and-data/median-cpi.aspx

    • Right Lance …..Quality and Quantity……They seem to work more efficiently by adjusting the later…..

      • Lance Manly

        Just to show the basic BS on PCE that is being pushed out, here is a graph of PCE inflation and the fed funds rate. There is no correlation. In the 90’s PCE settled in at about 2, but FF was between 4-6, in the 2000’s a similar pattern developed.

        https://fred.stlouisfed.org/graph/?g=pIyb

  2. Use this to find real crowdsourced CPI:
    http://www.chapwoodindex.com/

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