He’ll bring them [inflation], and they will love him for it

By Notes From the Rabbit Hole

[biiwii comment: going back to posting select items of my own content here, because… why not?]

I used to make fun of the FOMC rate hike “decision” language in the mainstream media because under the Obama administration and its economic policies overseen by the Fed’s monetary policy, there really was no decision, was there? It was ZIRP-eternity, interrupted by a lone and token rate hike in December 2015 (the Dec. 2016 hike does not count because the transition to a new administration and policy regime was already known; in effect, the Fed has already made its first hike under Trump).

According to the traders who make up the Fed Funds futures, there is no decision tomorrow, either. From CME Group, we have virtually no one predicting two successive rate hikes.

cme fed funds futures

That may or may not be the case. I think everything changed with the election, and the Fed you had before is not the Fed you have today. That Fed was a promoter of inflation and a hands-on supporter of the economy and especially, asset markets. The Fed had kept its implied ‘inflate or die’ mantra and associated monetary policy in place for 8 long years. But now with the country flipped over like an egg onto its sunny side, a new administration has proven it means what it says (beginning with its blunt, heavy handed and in my opinion, misguided delineation of race and religion on immigration policy).


Focusing on the financial realm, what the Trump administration says is it is going to implement is fiscal (as opposed to monetary) policy in the form of tax breaks to corporations large and small, to tax payers, including and especially the wealthy, infrastructure building, including ‘the WALL’ (more symbolic than realistic in my opinion) and environmental and business deregulation far and wide. It is a much more business-friendly environment and keeping pure politics out of it, that is a good thing, economically.

In short, what is described above is a scenario where the administration has grabbed the policy burden from the Fed and thus, the Fed is free to do as it pleases now, no longer playing politics. The Fed knows, just as you and I know, that the indirect, and maybe even unintended aim of the Trump administration is to promote inflation. That is because they intend to promote economic growth through policy, just has the Fed has been trying to do for the last 8 years under Obama. By one method or the other, it is in the ‘promotion’ that inflation lives.

Continue reading He’ll bring them [inflation], and they will love him for it

The Fed Needs More Inflation Nerds

By Michael Ashton

Earlier today I was on Bloomberg<GO> when the PCE inflation figures were released. As usual, it was an enjoyable time even if Alix Steel did call me a ‘big inflation nerd’ or something to that effect.

The topic was, of course, PCE – as well as inflation in general, how the Fed might respond (or not), and what the effect of the new Administration’s policies may be. You can see the main part of the discussion here, although not the part where Alix calls me a nerd. A man has some pride.

My main point regarding the PCE report was that PCE isn’t terribly low, but rather right on the long-run average as the chart below (all charts source Bloomberg) shows. Of course, PCE has been lagging behind the rise in CPI, but because it had been “too tight” previously this isn’t yet abnormal.


However, in the interview I didn’t get to the really nerdy part. Perhaps my ego was still stinging and so I didn’t want to highlight the nerdiness?[1] No matter. The nerdy part is that the reason PCE is low is actually no longer because of Medical Care, but because of housing. This next chart plots the spread of core CPI over core PCE, through last month’s figures, versus Owners’ Equivalent Rent (OER).

Continue reading The Fed Needs More Inflation Nerds

Inflation: Here’s What the Wrong Way Bet Looks Like

By Elliott Wave International

Markets all around the world are at a critical juncture — you must see this free report now.

This is the fifth year EWI has created their annual State of the Global Markets Report. And since many markets around the world are at a critical juncture, this may be the most-timely edition of the State of the Global Markets Report yet!

It comes right out of the pages of their paid publications. For a limited time, you can see this report at no cost.

Get your 21-page State of the Global Markets Report — 2017 Edition now.

This article was syndicated by Elliott Wave International and was originally published under the headline Inflation: Here’s What the Wrong-Way Bet Looks Like. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.


By Michael Ashton

Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus…buy my book about money and inflation, published in March 2016. The title of the book is What’s Wrong with Money? The Biggest Bubble of All; order from Amazon here.

  • Last CPI of 2016…fire it up!
  • Core +0.23%, a bit higher than expected. Market was looking for 0.16% or so.
  • y/y core CPI rises to 2.21%. The core print was the second highest since last Feb.
  • For a change, the BLS has the full data files posted so brb with more analysis. Housing subcomponent jumped, looking now.
  • Just saw this. Pretty cool. Our calculator https://www.enduringinvestments.com/calculators/cpi.php … pretty cool too but not updated instantly.
    • BLS-Labor Statistics @BLS_gov: See our interactive graphics on today’s new Consumer Price Index data http://go.usa.gov/x9mMG #CPI #BLSdata #DataViz
  • As I said, housing rose to 3.04% from 2.90% y/y. Primary Rents jumped to 3.96% from 3.88%; OER 3.57% from 3.54%.
  • Household energy was also higher, so some of the housing jump was actually energy. But the rise in primary rents matters.
  • Will come back to that. Apparel y/y slipped back into deflation (dollar effect). Recreation and Education steady. “Other” up a bit.
  • In Medical Care, 4.07% vs 3.98%. That had recently retraced a bit but back on the + side. Drugs, Prof. Svcs, and Hospital Svcs all +
  • Medicinal drugs. Not a new high but maybe the retracement is done.


  • Core services up to 3.1% from 3.0%; core goods -0.6% vs -0.7%.
  • That’s consistent with our view: stronger USD will keep core goods in or near deflation but it shouldn’t get much worse.
  • The dollar is just not going to cause core deflation in the US. Import/export sector is too small.
  • Core ex-housing rose to 1.20% from 1.12%. Still not exactly alarming!
  • Not from this report, but wages are worrying people and here’s why:

atlfedwages Continue reading Post-CPI

Why Central Banks Can’t Make Inflation, and Therefore Recovery

By Jeffrey Snider of Alhambra

Inflation in China slowed somewhat in December, as the Consumer Price Index decelerated to 2.1% from 2.3% in November. Very much like in the US, Europe, and Japan, the CPI level in China continues a lengthy stretch significantly below the official monetary target. For China, the PBOC has set 3% as its definition of “price stability.” The last time inflation was at that level was for November 2013, meaning that for the next thirty-seven months the central bank has been unable to achieve its basic mandate.

The measures it has deployed to try and do so have been catalogued here in this space for some time, most recently yesterday. Given the PBOC’s balance sheet construction, it is quite clear that as far as RMB liquidity has been concerned there has been an intentional program of expansion.

As noted yesterday, this is similar in type to balance sheet expansion undertaken at other central banks, though, it should be pointed out, far less in terms of size (so far). Under announced QE’s in any of the US, Europe, or Japan, balance sheet expansion of varying sizes and durations had similarly limited effects (meaning none) on inflation. In the US, the PCE Deflator has been less than the Federal Reserve’s 2% target for a ridiculous 55 months despite a balance sheet of $4.5 trillion. The only explanations Fed officials have offered is either IOER or “transitory” effects of “other” matters, including oil prices, that are still somehow conferred that qualification as if applicable after just about five years.

From the lack of plausible account for their failure we can easily and reasonably infer unseen monetary factors (they remain unseen primarily because if they were recognized it would be a simultaneous admission of dereliction of duty). Unlike the Fed’s balance sheet, however, the PBOC’s actually displays these same factors, if only in part. In other words, the full account of China’s central bank on the asset side has been rapid expansion in RMB terms the past few years, but greater contraction in “dollar” terms coinciding and even preceding it.

Thus, what the Chinese have faced during that time is really no different than what stymied other central banks in less explicit form. They have all been overwhelmed by “dollars” that at least for the PBOC are in part included directly in the accounting for China’s functional monetary basis. The primary difference is that China’s “dollar” problems are of a more recent development, and so its increasingly more forceful response is likewise comparatively younger.

So far, however, it has achieved mostly the same results. So even if it isn’t technically balance sheet expansion or QE, that is only because the Chinese are more explicit about functional money and the overall impact of comprehensive contraction. If the Federal Reserve’s balance sheet were combined with integral parts of dollar markets, too, it might look strikingly similar.

Because of that, it is not surprising that inflation has behaved similarly in China as everywhere else QE was tried. The “dollar”, more open on that side of the Pacific, is visibly larger than the monetary policies meant to offset it. Though we can’t directly observe the dynamic in other places, that we can in China provides an explicit example of what the global economy remains up against.

CPI’s Positive Numbers

By Jeffrey Snider of Alhambra

The CPI shows once more the difference between meaningful change and the same sorts of positive numbers that have populated the last five years

Consumer prices accelerated again in October 2016, with the overall CPI calculating a 1.64% inflation rate. That is up from 1.46% in September, and the highest since October 2014. The reason is energy prices. For the first time in over two years, the energy component of the CPI was positive year-over-year. Having been as low as -20% in early 2015, and almost -11% this July, the difference in energy is obvious on the overall index.

abook-nov-2016-cpi-energy abook-nov-2016-cpi-v-pce-deflator

In fact, energy prices mainly determine the marginal changes in the total CPI. Though price differences are far more extreme in energy, their scaled effects on the whole index are very clear.

All that means is that consumer prices, according to the CPI, are back to where they were in 2012, 2013, and 2014. In other words, without the big drag from oil and other commodities, the CPI is still shallow. The 2-year change is just 1.81%, bringing into focus the highly unusual nature of this current period. In all prior periods, a sharp downturn was followed by an equally sharp upturn, prices as well as output. These are simple base effects and little more (and that “more” is where prices are doing more harm rather than reflect recovery).

Toward the end of 2006, for example, the energy component of the CPI fell sharply, down a little more than 10% that October, which had the effect of dragging the overall index down from near 4% to just 1.3%. Just two months later, despite energy prices still lagging, the CPI was back above 2.5% and then near 4% again by November 2007 once oil joined the final, mistaken eurodollar rush.

Continue reading CPI’s Positive Numbers

Inflation 101: Prep School for Preppers

By Danielle DiMartino Booth

Mention Preppies and visions of Izods with popped collars and boat shoes may come to mind. The Official Preppy Handbook, published in 1980, regaled readers with the “merits of pink and green,” instructing that, “socks are frequently not worn on sporting occasions or on social occasions for that matter. This provides a year-round beachside look that is so desirable that comfort may be set aside.”

Reference “Preppers,” on the other hand, and fashion goes out the window replaced by sturdy wears and wares. Gucci is supplanted by the “Bug Out Bag (BOB)” and “Get Out of Dodge (GOOD) Kit.” Modern day survivalists have upgraded their essentials to include electric generators, water purifiers, and several years’ worth of provisions. Who’s to blame them? Go big if you can’t go home.

Inflation 101: prepschool-for-preppers

In the blink of an election, the two worlds of Preppy and Prepper have collided. Rather than the possibilities being remote as doomsday scenarios suggest, potential outcomes are conspicuous in their size, abundance and mystery. Hence the logic when yours truly received this warning from a reader logged into a posh investment website in the wake of last week’s upset win for Donald Trump: “Buy brand name defensive ammo for handguns. It will hold its value better than gold. It is an inflation hedge. Buy a box every month. Diversify the calibers.”

Such sophisticated language and tone for a disturbingly dire forecast. And his admonitions came before the tizzy the bond market has thrown in recent days in anticipation of all manner of fiscal stimulus. The question on everyone’s mind is how far does the backup in bond prices in anticipation of inflation have to run?

Continue reading at TalkMarkets →

The Upshot of Inflationism

By Doug Noland

Credit Bubble Bulletin: The Upshot of Inflationism

As a determined analyst, I’m as committed as ever to remaining “fiercely independent.” This must at least partially explain why I’ve tended to consider myself politically “independent.” Political party ideologies undoubtedly engender biases and compromise objectivity. With the two major parties now in such a muddle, an “independent” affiliation almost wins by default. I recall years ago when I was first introduced to the notion of “the evil party and the stupid party” in a discussion about our two-party system. That conversation doesn’t seem as deeply cynical these days.

I’m left to daydream of a party committed to a smaller and less obtrusive federal government, strong national defense, fiscal responsibility, social tolerance and attentiveness to the environment. It doesn’t seem all that outlandish. Yet there’s one more thing – perhaps the most vital of all: I aspire to be associated with a political movement committed to sound money and Credit. Why all the clamor over guns when unbridled finance is so much more destructive?

This election cycle has been a national disgrace. It finally comes to an end Tuesday, when a deeply divided nation heads to the polls. I recall having a tinge of hope eight years ago that there was a commitment to more inter-party cooperation and less partisan vitriol. There’s not even lip service this time around. As an optimist, I would like to believe that a period of healing commences Wednesday. The analyst inside knows things will continue to worsen before they get better.

Our nation and the world are paying a very heavy price for a failed experiment in Inflationism. At this point, economic stagnation, wealth redistribution and inequality, financial insecurity and corruption are rather obvious consequences. “Money” and Credit have inflated, right along with government, securities markets, financial institutions, corporate influence and greed.

Along the way, there have been many subtle effects. To this day the majority still cling to the view that central bankers are essential to the solution – rather than the problem. But they are at the very root of disturbing national and international, economic, financial, societal and geopolitical degeneration.

For close to 30 years now, central bank policies have nurtured serial inflationary booms and busts. It’s a backdrop that has repeatedly forced investors, homebuyers and others into serious harm’s way. Buy or you’ll be left behind. Get aboard before it’s too late. It’s a system that systematically targets the unsophisticated and less affluent to take on a tenuous debt position to buy homes, cars and things in the name of promoting economic growth. It’s a system that devalues the wealth of savers. Somehow it’s regressed into a system with a policy objective to coerce savers and the risk averse, to ensure their buying power instead inflates the value of risky securities market assets.

We’re witnessing the repercussions of a prolonged bad cycle of playing with society’s psyche: inflating untenable expectations, only to see them crushed by the fist of bursting Bubbles. Central bankers then simply press on to the more egregious extremes necessary to reflate expectations. Apparently, big corporate “media” has been fine with all of this. Indeed, the “media” have been instrumental to Washington and Wall Street propaganda campaigns.

Continue reading The Upshot of Inflationism

Bi-Weekly Economic Review: Is the Fed Behind the Curve?

By Joseph Calhoun of Alhambra

Is the Fed Behind the Curve?

Economic Reports Scorecard


There was little improvement in the economic data the last couple of weeks, the Citigroup Economic Surprise index still well below zero (-8.1). And frankly, where there was improvement such as the GDP report, it doesn’t look sustainable…unless the US is about to become a soybean exporting powerhouse. Anything is possible I suppose but counting on Brazil to have a lousy soybean crop every year doesn’t sound like much of a growth plan. Neither does adding to inventories when shelves are already more than fully stocked, inventory to sales ratios at recession levels.

I said in the last report that it appeared that, based on what we were seeing in the bond market, real growth expectations were rising. It took a mere two weeks to make me look a fool on that front. Bonds have continued to sell off but it is nominal bonds leading the way with TIPS outperforming. In other words, the bond selloff isn’t about real growth, it is about inflation fears. Those fears have been bolstered by some data such as the Case Shiller and FHFA house price indexes (+5.1% and 6.4% YOY respectively), a CPI that is rising closer to the Fed’s alleged target and the Employment Cost Index, up 2.2% YOY. But more than that I think is the new meme coming out of the Fed about allowing the economy to “run hot” for a while to make up for lost ground in the inflation indices. Janet Yellen, in a recent speech, touted the supposed benefits of operating a “high pressure economy”, one with inflation higher and unemployment lower than what the Fed believes to be appropriate in normal times.

Of course, this tradeoff between inflation and unemployment is one that, while oft alleged, has been tough to see in a real, actual economy. The alleged benefits of a high pressure economy are so extensive – raise consumer spending and business investment, raise the labor participation rate, increase R&D spending and new business formation according to Yellen – that to not pursue them would seem to be monetary malpractice. Of course, all the reckonin’, allowin’ and speculatin’ (as my father used to say) about such a high pressure economy presumes that the two variables are in some way linked and can be easily controlled by the Fed. The market seems to have no problem believing the Fed will let inflation run beyond its target but is much more skeptical about any benefit to the real economy.

I am frankly horrified that the leader of the Federal Reserve has such reverence for the old, rough Keynesian distortion of the A.W. Phillips study of labor markets and real wages. The original study did nothing more than prove that the forces of supply and demand apply to labor markets like any other. It had nothing to say about general inflation or any alleged trade-off with unemployment. The idea that more people working creates inflation is one that should spring only from the mind of a simpleton with limited critical thinking skills or a politician with an agenda – often one and the same for sure. It is as if the new person working adds to aggregate demand but has no impact on aggregate supply – which if true should limit their employment to a very brief period. The productivity figures in the new century are nothing about which to brag but they aren’t that bad.

Anyway, the point is that inflation expectations are on the rise and may or may not be a result of Janet Yellen’s inane mental maundering. As I said above, there is some evidence of inflation pressures in the economic data but it is unlikely to be anything other than – to use Yellen’s favored phrase – transitory absent a supporting move in the dollar. Inflation is about the purchasing power of money and a sustained burst of higher inflation isn’t going to happen without the dollar falling in value. Which it may do and indeed our momentum indicators say is likely. If so, this initial move higher in bond yields may be just that – initial and subject to further rises. For now though, the rise in inflation expectations is modest although the losses in the long end of the curve are not. Which makes me wonder if Ms. Yellen has considered the impact of higher bond yields in a world that thinks her daft and inattentive to the one thing over which she has some control – inflation.

Continue reading Bi-Weekly Economic Review: Is the Fed Behind the Curve?


By Michael Ashton

CPI was good for markets in the short run. But inflation is rising, and that’s bad for markets in the medium-run

Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus…buy my book about money and inflation, published in March 2016. The title of the book is What’s Wrong with Money? The Biggest Bubble of All; order from Amazon here.

  • CPI coming up in 14 minutes. Consensus on core is for a barely 0.2% print, (more like 0.15%). That would keep the y/y barely at 2.3%.
  • Remember to join me at 9am for a (FREE) live interactive video event at http://events.shindig.com/event/tmenduringinvestments
  • okay, core 0.1%, y/y to 2.2%. Yayy! And by the way it was only 0.11% so not close. y/y to 2.21%.
  • core rate is only 1.8% over last 3 months, vs 2.0% over last 6 and 2.2% over last 9. November tightening is wholly out.
  • Housing accelerated, Medical care roughly unch. Educ/Communication dropped. Getting breakdown now.
  • Headline was also soft. Market was 241.475 bid before the number and 241.428 was the print. Still rounded to 0.3% m/m though.
  • Bonds don’t love this as much as I thought they would. 10y note up about 4 ticks after the data.
  • 10y inflation swaps also didn’t do much. Close to 2% for first time in a long, long time.
  • Primary rents 3.70% from 3.78%, I was reading last month. But OER still up, 3.38% from 3.31%.
  • New and used cars -1.16% vs -0.95%, so more weakness there.
  • In Med care: Drugs 5.38% vs 4.59%, ouch. But prof svcs 3.22% vs 3.35%, and hospitals 5.64% vs 5.81%, and insurance 8.37% vs 9.10%.
  • But those are all retracements within trend.
  • Tuition ebbed to 2.32% vs 2.53%, and “information and info processing” -1.98% vs -0.90%. Those two add up to 7% of CPI.
  • I can see why bonds aren’t super excited. This isn’t a trend change. It looks like a pause.
  • ok, have to go get ready for the video event. See you at http://events.shindig.com/event/tmenduringinvestments … in about 10.
  • Probably good news from Median as well. I see 0.17%, bringing y/y down to 2.54% vs 2.61%. But hsg is median category so I may be off.

I covered some stuff in the Shindig event, but it’s worth showing a couple of charts. Here is health insurance. You can see the little drop this month isn’t exactly something that would make you say “whew! Glad that’s over!”

medins Continue reading Post-CPI