The Daily Shot 9.19.16

By SoberLook

We begin with the United States where consumer inflation surprised to the upside.

1. The chart below shows US core CPI which came in a bit above consensus.

2. Other inflation measures tracked closely by the Fed, the so-called “sticky CPI” and the 16% Trimmed-Mean CPI moved higher as well.

3. While it’s easy to get excited about these increases – leading to the conclusion that the Fed must raise rates soon, some caution is required here. The bulk of the increase came from the medical care component of the CPI, and it’s not at all clear how rate hikes would “cure” this problem.

4. The other component of inflation that remains robust is “shelter CPI.” The chart below shows how housing costs compare with the overall core CPI over the past ten years. Some suggest that a rate hike is required to cool housing costs. However, most of these increases come from rental expenses, and there is little evidence that higher rates reduce rents. In fact, higher financing costs could exacerbate the shortages of rental housing by lowering new construction activity.

5. The ex-shelter CPI is basically flat (chart below) and without the medical care price jump the US is in deflation.

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