The multiple faces of inflation

The Atlanta Fed´s “inflation project” provides us with alternative measures of CPI inflation. It separates flexible prices from sticky prices and, in addition, subdivides both the flexible and sticky components into their core measures. It also provides the sticky measures excluding shelter inflation.

Yesterday, the St Louis Fed tweeted the following chart, indicating that headline sticky annualized CPI inflation had reached 3.5% (Oh my God!) in September.

Inflation Faces_1

In a recent post, Kevin Erdman arrives at a very sensible conclusion:

This week, expectations of a Fed rate hike have moved back from the December meeting toward the March meeting.  That would be helpful, given that outside of the rent inflation caused by the housing supply depression inflation continues to be at a 50 year low.

In the meantime, considering the decade long depression-level behavior of housing starts, calls for monetary contraction because of inflation that is largely the product of rising rents are indefensible.

My point is that a target that has “multiple faces” is a dangerous target indeed!

In addition, presenting the multiple-faced target in a noisy format (annualized rates), is “criminal”.

Let´s see some examples.

Superimposing the headline sticky year on year (YoY) rate to the headline sticky annualized CPI inflation tweeted by the St Louis Fed, we get a very different picture of trend inflation.

Inflation Faces_2

And comparing the sticky YoY Core-CPI with the sticky YoY Core CPI-Ex shelter we see the reason for Kevin´s conclusion.

Inflation Faces_3

Note: House Starts:

Inflation Faces_4

One thought on “The multiple faces of inflation

  1. The silver lining to tweets like the St Louis one is that it shows just how weak and desperate must be their thinking. It opens them up to simple refutations (like yours) or even ridicule – thus weakening their case substantially. More tweets from the Fed, please.

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