6 ms·

5% backward looking. If you use the last 3 months and extrapolate forward - we're back down to ~2.5%. If you use only the last month and extrapolate forward -

5% backward looking. If you use the last 3 months and extrapolate forward - we're back down to ~2.5%. If you use only the last month and extrapolate forward - we're at ~1.25%. Housing costs are ~39% of the economy alone. If those aren't inflating - it's pretty hard for overall inflation to be super hot. Unless rents & owner's equivalent rents start shooting up again, inflation isn't going back to 10%.

notch898b 4y ago
I guess the big question is whether landlords will hand down to tenants the massive increase in mortgage costs as interest rates rose while real estate barely budged.
- KerrAvon 4y ago
  If we're to believe the media, one of the myriad issues with housing at the moment is that landlords held onto their low-rate pre-pandemic mortgages, so there might broadly not be an increase to pass on.
- sneed_chucker 4y ago
  > massive increase in mortgage costs Sorry, but why do you think landlords have experienced an increase in mortgage costs? Maybe if they have adjustable rate mortgages or if their loan originated after March 2022. But I don't think that's the case for the vast majority of established landlords. What's way more likely is that everyone marking rent money off of leveraged property went ahead and refinanced everything to 2-3% fixed rate mortgages as soon as that became an option.
  - anankaie 4y ago
    There is the other side of the coin here, in that if landlords are trying to expand their businesses / finance improvements to properties, they will be looking at taking on more debt. This will increase their average rate, and they will absolutely pass that on to their tenants. The question is of timeframe over which this process will occur.
    - sneed_chucker 4y ago
      In the US, improvements/repairs to rental properties are extremely tax advantaged. You might take on debt for the initial liquidity, but as I understand it's easy for landlords to use these expenses to effectively nuke their income tax liability.
bequanna 4y ago
Good, but asset values are still near historical high valuations. The Fed plan isn't to just tame inflation but reduce employment to slow wage increases, reverse asset gains with "higher for longer", and restore credibility. Get comfortable. Still a long way to go before that pivot.
- makestuff 4y ago
  Typically the asset crash happens after the fed pivots. Obviously correlation != causation, but just because inflation is coming down doesn't mean assets won't follow soon.
  - bequanna 4y ago
    IMO the Fed is trying very hard to regain credibility after the overblown stimulus and terribly delayed response to the resulting inflation. These are two very public failures. Everyone is expecting a quick pivot which is why I think that is exactly what will not happen. Many people are making foolish purchases now at inflated asset prices and high interest rates because they expect that they will be able to refinance at lower rates in a year or so. What if they can't? Once the general public starts to realize what "higher for longer" actually means we will (hopefully) have a huge sentiment shift to the downside with corresponding asset price corrections.
- JumpCrisscross 4y ago
  > Fed plan isn't to just tame inflation but reduce employment to slow wage increases, reverse asset gains with "higher for longer" No, the Fed’s plan is to tame inflation. If Powell can do that while maintaining strong employment, he’ll go down in history as a legend. Nobody wants unemployment to go up or asset prices to go down.
  - bequanna 4y ago
    Overly strong employment isn't necessarily ideal. We could have official 0% unemployment by just paying people to stay home. Labor shortages and unchecked wage growth supports inflation.
jraby3 4y ago
Housing prices aren’t included in the inflation basket of goods.
- dragontamer 4y ago
  Yes it is. See "Shelter", filed under "Services less energy services".
  - adam_arthur 4y ago
    This is rents, not prices. Why are there so many comments confusing this? Nobody is implying rents when they say "housing prices"
    - pcthrowaway 4y ago
      The person upthread said "housing costs", and that absolutely includes rents (that's primarily what I think of when I think of the "cost of housing")
      - adam_arthur 4y ago
        The person who was directly responded to said: "Housing prices aren’t included in the inflation basket of goods." Which is correct. What was said up thread is irrelevant. If you want to correct him for stating that as off topic or misconstruing the parent comment, that's fine. But spreading misinformation about home prices being included in CPI is not. Again, nobody is implying "rents" when they say "housing prices".
    - paulddraper 4y ago
      Those are equivalent.
      - adam_arthur 4y ago
        They are not. Rent prices and home prices are not equivalent. Am I in some twilight zone episode here?
dragontamer 4y ago
I don't think its a good idea to extrapolate using CPI, because food/energy is so volatile. Its not like anyone can predict the next Avian flu / Swine flu / whatever... and oil prices rise / fall to the whims of OPEC+, which is also quite unpredictable. (Also, weather: mild winter caused lower energy prices this past few months... but we can't rely upon good weather constantly) Core-CPI isn't so rosy: the last three MoM values are 0.4, 0.5, and 0.4 (1.3% core CPI inflation over 3 months), which extrapolates to 5.3% yearly core-inflation. Which _is_ down btw compared to last year... But its not nearly down enough.
adam_arthur 4y ago
And it's ~5% if you annualize last months MoM core measure. The Fed is making judgements primarily off of core, not headline. e.g. Oil dropped to ~$65 last month, but is now at ~$85. Does it make sense to consider last month's number a durable trend down given that the low headline was primarily due to decline in energy prices? A decline that doesn't exist anymore? No, not really. CPI in general is a poor measure for driving Fed policy since many measures are lagged, but even still, far more sensible to use core and strip outliers
- dragontamer 4y ago
  Fed policy is based around PCE these days, not CPI. Because PCE is more-leading than CPI is. (Or less lagged?)
  - adam_arthur 4y ago
    You're right, they technically use Core PCE, rather than Core CPI. But if you look at a chart of the two they are very tightly correlated. They can be used pretty much interchangeably as an inflation measure, methodology not different enough to create material differences.

notch898b 4y ago

I guess the big question is whether landlords will hand down to tenants the massive increase in mortgage costs as interest rates rose while real estate barely budged.

KerrAvon 4y ago
If we're to believe the media, one of the myriad issues with housing at the moment is that landlords held onto their low-rate pre-pandemic mortgages, so there might broadly not be an increase to pass on.
sneed_chucker 4y ago
> massive increase in mortgage costs Sorry, but why do you think landlords have experienced an increase in mortgage costs? Maybe if they have adjustable rate mortgages or if their loan originated after March 2022. But I don't think that's the case for the vast majority of established landlords. What's way more likely is that everyone marking rent money off of leveraged property went ahead and refinanced everything to 2-3% fixed rate mortgages as soon as that became an option.
- anankaie 4y ago
  There is the other side of the coin here, in that if landlords are trying to expand their businesses / finance improvements to properties, they will be looking at taking on more debt. This will increase their average rate, and they will absolutely pass that on to their tenants. The question is of timeframe over which this process will occur.
  - sneed_chucker 4y ago
    In the US, improvements/repairs to rental properties are extremely tax advantaged. You might take on debt for the initial liquidity, but as I understand it's easy for landlords to use these expenses to effectively nuke their income tax liability.

bequanna 4y ago

Good, but asset values are still near historical high valuations. The Fed plan isn't to just tame inflation but reduce employment to slow wage increases, reverse asset gains with "higher for longer", and restore credibility. Get comfortable. Still a long way to go before that pivot.

makestuff 4y ago
Typically the asset crash happens after the fed pivots. Obviously correlation != causation, but just because inflation is coming down doesn't mean assets won't follow soon.
- bequanna 4y ago
  IMO the Fed is trying very hard to regain credibility after the overblown stimulus and terribly delayed response to the resulting inflation. These are two very public failures. Everyone is expecting a quick pivot which is why I think that is exactly what will not happen. Many people are making foolish purchases now at inflated asset prices and high interest rates because they expect that they will be able to refinance at lower rates in a year or so. What if they can't? Once the general public starts to realize what "higher for longer" actually means we will (hopefully) have a huge sentiment shift to the downside with corresponding asset price corrections.
JumpCrisscross 4y ago
> Fed plan isn't to just tame inflation but reduce employment to slow wage increases, reverse asset gains with "higher for longer" No, the Fed’s plan is to tame inflation. If Powell can do that while maintaining strong employment, he’ll go down in history as a legend. Nobody wants unemployment to go up or asset prices to go down.
- bequanna 4y ago
  Overly strong employment isn't necessarily ideal. We could have official 0% unemployment by just paying people to stay home. Labor shortages and unchecked wage growth supports inflation.

jraby3 4y ago

Housing prices aren’t included in the inflation basket of goods.

dragontamer 4y ago
Yes it is. See "Shelter", filed under "Services less energy services".
- adam_arthur 4y ago
  This is rents, not prices. Why are there so many comments confusing this? Nobody is implying rents when they say "housing prices"
  - pcthrowaway 4y ago
    The person upthread said "housing costs", and that absolutely includes rents (that's primarily what I think of when I think of the "cost of housing")
    - adam_arthur 4y ago
      The person who was directly responded to said: "Housing prices aren’t included in the inflation basket of goods." Which is correct. What was said up thread is irrelevant. If you want to correct him for stating that as off topic or misconstruing the parent comment, that's fine. But spreading misinformation about home prices being included in CPI is not. Again, nobody is implying "rents" when they say "housing prices".
  - paulddraper 4y ago
    Those are equivalent.
    - adam_arthur 4y ago
      They are not. Rent prices and home prices are not equivalent. Am I in some twilight zone episode here?

dragontamer 4y ago

I don't think its a good idea to extrapolate using CPI, because food/energy is so volatile. Its not like anyone can predict the next Avian flu / Swine flu / whatever... and oil prices rise / fall to the whims of OPEC+, which is also quite unpredictable. (Also, weather: mild winter caused lower energy prices this past few months... but we can't rely upon good weather constantly) Core-CPI isn't so rosy: the last three MoM values are 0.4, 0.5, and 0.4 (1.3% core CPI inflation over 3 months), which extrapolates to 5.3% yearly core-inflation. Which _is_ down btw compared to last year... But its not nearly down enough.

adam_arthur 4y ago

And it's ~5% if you annualize last months MoM core measure. The Fed is making judgements primarily off of core, not headline. e.g. Oil dropped to ~$65 last month, but is now at ~$85. Does it make sense to consider last month's number a durable trend down given that the low headline was primarily due to decline in energy prices? A decline that doesn't exist anymore? No, not really. CPI in general is a poor measure for driving Fed policy since many measures are lagged, but even still, far more sensible to use core and strip outliers

dragontamer 4y ago
Fed policy is based around PCE these days, not CPI. Because PCE is more-leading than CPI is. (Or less lagged?)
- adam_arthur 4y ago
  You're right, they technically use Core PCE, rather than Core CPI. But if you look at a chart of the two they are very tightly correlated. They can be used pretty much interchangeably as an inflation measure, methodology not different enough to create material differences.