Inflation was a bit “hotter” than expected in November, the BLS said Thursday, although “hot” is obviously a relative term these days.
Headline CPI rose 0.2% MoM in November, more than the 0.1% rise the market expected. Core also rose 0.2%.
The YoY readings were 1.2% and 1.6%, respectively, leaving the “big picture” (if you will) steady.
Generally speaking, the narrative hasn’t changed. The deflationary effects from the pandemic are expected to linger, but there’s evidence of a pick up in service sector prices.
The BLS notes that “the indexes for lodging away from home, recreation, apparel, airline fares, and motor vehicle insurance all increased in November.”
Broadly, services sector prices rose the most since July, but if you pan out on the series, the 0.24% gain in November is hardly a “scorcher.”
Note that services sector PMIs for November suggested price pressures are building, as input costs surge.
And while the color that accompanied some of those surveys pointed to providers passing higher costs along to consumers, it’s hard to hike prices too much when 10 million more people are jobless now than they were prior to the pandemic. And that’s to say nothing of restrictions on business activity tied the virus.
Also note that the indexes for rent and owners’ equivalent rent were both unchanged in November (figure below).
All in all, you’ll be forgiven if you’re still firmly in the deflation camp.
It is well to be cautious about inflation measurements- here is why. Market baskets used to actually calculate the numbers are not stable. How do you weight the cost of cruises, eating out, eating at home, buying sweatpants, buying clothes for work, airline tickets, vacations, laptops, webcams, owners equivalent rent in manhattan vs the suburbs and i could go on. The point is that the baseline is changing so quickly and is so unstable that the numbers we are getting are unreliable. Manhattan apartment rental prices have plummetted, but other rents or prices of housing has increased. It is fiendishly difficult to calculate rate of change when you don’t know what you should measure. I am not sure if prices are rising fast and you should not either- maybe they are and maybe not. But the statistics are totally unreliable at this point.
Great point! As you articulated we are seeing inflationary and deflationary impacts occurring simultaneously. It’s almost as if creating a single metric is misleading and not representative of real world costs. To your point, Manhattan rents are incredibly low while suburban home prices are blowing up out of control. Prices for the hospitality industry are effectively blocked as not very many folks are actually buying anything. Looking longer term, you wonder what the inflationary effects will be for that industry when it finally does because safe to vacation again. Massive demand and an industry in desperate need of income to overcome the losses of this past year. And then there are household goods, for a time this year it was impossible to find toilet paper, people were able to sell it on Amazon and Ebay for 10 times it’s value with ease. That’s a huge inflationary indicator that seems to be overlooked in the metric.
Whoopsie, I think I found some inflation.
https://fred.stlouisfed.org/series/CUUR0000SA0R
People have so little faith in dollars that they are willing to swap out thousands of them for worthless digital tokens or ounces of practically useless metal or a dozen DoorDash shares.
Airbnb went from an $18 billion company last Spring to a $100 company today on equivalent cash flows, growth, and risks.
Healthcare, education, used cars, streaming services, all screaming higher. Household debts increasing on flat wages and real income.
But if the Fed ever detected an uptick in consumer inflation, it can always measure it differently.
It’s a K-shaped inflation!