Oh, goody! Noise! (Inflation data)

Investment Analysis Clubs Macro Economic Trends and Risks
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Oh, goody! CPI at 3% is still higher than the Fed’s 2% target and the June YOY CPI “improvement” is noise, not a trend. But “core” inflation is declining, which matters because nobody uses food or energy.

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This “better than expected” CPI change caused bond yields to fall and the financial press to squeal in delight. The options market still expects a fed funds rate in September.

https://www.wsj.com/economy/central-banking/inflation-june-cpi-report-interest-rate-437fa772

https://www.nytimes.com/live/2024/07/11/business/cpi-inflation-fed

Now, it’s possible that CPI inflation actually is falling. What annoys me is seeing so-called economists confusing noise with signal in a chart with a stable channel.

The Cleveland Fed has confidence that inflation will continue to fall and forecasts 3Q24 Quarterly annualized percent change of 1.89% for CPI and 2.59% for Core CPI.

Fed Chair Powell has said many times that he wants to see inflation stabilize for a sustained period of time before cutting the fed funds rate.

Treasury uses CPI to calculate the inflation adjustment on TIPS and I-Bonds. The Fed prefers the PCE index to the CPI.
Wendy

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It is all about the spin. I used to do a series on this board called “spin cycle”; analysts who make opposite calls, on the same stock, on the same day.

Steve…hype and hysteria rules in Shiny-land

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I agree that it’s likely mostly noise, but to be fair, if you look at the last 3 months, they are at 2.3% annualized. That’s pretty good for that 3-month period.

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I just wonder what everyone would be saying if it was up .2%. Seems people aren’t happy with it being lower than projected. That just makes me go Hmmmm.

Andy

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We are getting into price stability. That is why the economists are happy. Rents are coming down. Home prices in many markets are falling. There is a more than reasonable belief we will get into the 2% ballpark sooner rather than later.

Economics is forward-looking. The present pricing actions support a further decline in inflation.

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