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The next few months will show low CPI on a MoM basis due to "base effects" of pandemic spending starting to ebb. Prices swung too far too fast on the upside, es

The next few months will show low CPI on a MoM basis due to "base effects" of pandemic spending starting to ebb. Prices swung too far too fast on the upside, especially in rents. We see concurrent rent data declining over the past few months, but it has started to rebound more recently. However, structurally inflation is likely to resurge on a MoM basis later in the year. The labor market is tighter than ever before and wages are rising at 5-6% annualized. Oil looks set to rebound, as a lot of the decline was due to recession betting and US SPR releases distorting supply (which are still happening, but obviously can't go on forever). Inflation will only go away structurally once a recession ultimately hits. Very unlikely that it stays around 2% with markets, bonds, commodities rallying alongside 6%+ wage gains. The cycle length depends on whether the Fed decides to see through nominally lower numbers. If not, will be similar to the 70s/80s false troughs and re-steepening in inflation.

jonnycomputer 3y ago
Well, what does month over month say? We don't have to hae a recession to kill inflation. We can just have a soft-landing.
- adam_arthur 3y ago
  MoM gives you a more current view of the state of inflation. Even better is to annualize the previous 3m, 6m, 12m Why care about inflation at all? Well, you can reference the history of most South American countries for that
  - jonnycomputer 3y ago
    Ok Adam "I answer questions you didn't really have" Arthur.
    - adam_arthur 3y ago
      You had one question in your comment which I answered, whether rhetorical or not. Saying "we can have a soft landing" with no context or supporting reasoning isn't really saying anything at all. History shows only really 1 instance of a "soft landing", and the economy was less overheated and policy much more proactive back then. Back then the Fed actually tried to move ahead of inflation by assessing structural tightness... not reactive based on CPI
      - jonnycomputer 3y ago
        No, I asked how the MoM compares to the YoY. Not for a definition of MoM. Anyway, here is MoM. https://econbrowser.com/archives/2023/07/inflation-at-month-on-month-headline-core-sticky-trimmed-mean-instantaneous https://econbrowser.com/archives/2023/07/inflation-at-month-... You are correct that the decline is exaggerated by base effects; but it's also true that there has been a fairly steady decline last few quarters (disinflation)
        adam_arthur 3y ago
        The first line of my original comment states that MoM CPI will be low over the next few months, in my opinion from factors that will ultimately be fleeting. So you seem to be having a conversation with yourself that is unrelated to my original post. MoM inflation on its own doesn't tell you anything about structural inflation. MoM fell many times in the 70s/80s only to rebound later due to overly optimistic policy makers assuming a downward trajectory would be sustained without further action from them. It's effectively the exact same situation we're in now... only question is whether the Fed chooses to repeat that path or not
- lamontcg 3y ago
  "economists have correctly predicted 10 of the last 0 soft landings" to paraphrase the aphorism.
danielmarkbruce 3y ago
The level of certainty... seems off.
- adam_arthur 3y ago
  The structural, hard data has foretold the path of inflation over the past 3 years with a high level of accuracy. Ignore the noise/headlines and you'll have a pretty clear view of the state of the economy. People who bet on sentiment and not the actual data have been wrong... though sentiment can drive real data to a certain extent, of course
  - danielmarkbruce 3y ago
    I hope you made a truck load of money with said foretelling data.
    - adam_arthur 3y ago
      Yes, predicting correctly does pay. Currently 80% long with cost basis mostly around last October/SVB lows in primarily REITs and financials/lenders. Market will likely rally over next few months (smaller caps), until the reality sets in on sticky inflation. If Fed sees through the short-term data and signals this, then market will pull back soon, otherwise will happen later in the year. Inflation falling back to 2% and staying there with 6% wage gains and rallying markets/commodities is a fantasy. A quite obvious one to predict, yes, if you study the history of monetary policy for more than a few minutes. There is always the possibility of a trapdoor recession though. By some measures household accumulated savings are close to depleting, student loans resuming... and consumer credit measures are looking weaker. We have a stimulus impulse thats fading competing against a structurally strong economy. Which one will win in the end? If the signs start pointing in that direction, then it will be time to pivot to a recession trade. You just have to be there first
      - lotsofpulp 3y ago
        > Yes, predicting correctly does pay. Predicting correctly and not telling others pays more.
MAGZine 3y ago
bonds are high because interest is high. interest makes money more expensive, which generally causes less economic activity, not more. so that's a weird bit of causality that you've included in your comment. in particular, in tech many companies will face a reckoning when they're unable to raise at terms they need to survive.
- adam_arthur 3y ago
  The rate on bonds only matters relative to the rate of inflation. Bond yields below inflation (in aggregate in the longer term), are stimulative, regardless of the nominal level. Financial conditions have been easing over the last few months, not tightening. Fed hikes only impact the short end. Long end is market based

jonnycomputer 3y ago

Well, what does month over month say? We don't have to hae a recession to kill inflation. We can just have a soft-landing.

adam_arthur 3y ago
MoM gives you a more current view of the state of inflation. Even better is to annualize the previous 3m, 6m, 12m Why care about inflation at all? Well, you can reference the history of most South American countries for that
- jonnycomputer 3y ago
  Ok Adam "I answer questions you didn't really have" Arthur.
  - adam_arthur 3y ago
    You had one question in your comment which I answered, whether rhetorical or not. Saying "we can have a soft landing" with no context or supporting reasoning isn't really saying anything at all. History shows only really 1 instance of a "soft landing", and the economy was less overheated and policy much more proactive back then. Back then the Fed actually tried to move ahead of inflation by assessing structural tightness... not reactive based on CPI
    - jonnycomputer 3y ago
      No, I asked how the MoM compares to the YoY. Not for a definition of MoM. Anyway, here is MoM. https://econbrowser.com/archives/2023/07/inflation-at-month-on-month-headline-core-sticky-trimmed-mean-instantaneous https://econbrowser.com/archives/2023/07/inflation-at-month-... You are correct that the decline is exaggerated by base effects; but it's also true that there has been a fairly steady decline last few quarters (disinflation)
      - adam_arthur 3y ago
        The first line of my original comment states that MoM CPI will be low over the next few months, in my opinion from factors that will ultimately be fleeting. So you seem to be having a conversation with yourself that is unrelated to my original post. MoM inflation on its own doesn't tell you anything about structural inflation. MoM fell many times in the 70s/80s only to rebound later due to overly optimistic policy makers assuming a downward trajectory would be sustained without further action from them. It's effectively the exact same situation we're in now... only question is whether the Fed chooses to repeat that path or not
lamontcg 3y ago
"economists have correctly predicted 10 of the last 0 soft landings" to paraphrase the aphorism.

danielmarkbruce 3y ago

The level of certainty... seems off.

adam_arthur 3y ago
The structural, hard data has foretold the path of inflation over the past 3 years with a high level of accuracy. Ignore the noise/headlines and you'll have a pretty clear view of the state of the economy. People who bet on sentiment and not the actual data have been wrong... though sentiment can drive real data to a certain extent, of course
- danielmarkbruce 3y ago
  I hope you made a truck load of money with said foretelling data.
  - adam_arthur 3y ago
    Yes, predicting correctly does pay. Currently 80% long with cost basis mostly around last October/SVB lows in primarily REITs and financials/lenders. Market will likely rally over next few months (smaller caps), until the reality sets in on sticky inflation. If Fed sees through the short-term data and signals this, then market will pull back soon, otherwise will happen later in the year. Inflation falling back to 2% and staying there with 6% wage gains and rallying markets/commodities is a fantasy. A quite obvious one to predict, yes, if you study the history of monetary policy for more than a few minutes. There is always the possibility of a trapdoor recession though. By some measures household accumulated savings are close to depleting, student loans resuming... and consumer credit measures are looking weaker. We have a stimulus impulse thats fading competing against a structurally strong economy. Which one will win in the end? If the signs start pointing in that direction, then it will be time to pivot to a recession trade. You just have to be there first
    - lotsofpulp 3y ago
      > Yes, predicting correctly does pay. Predicting correctly and not telling others pays more.

MAGZine 3y ago

bonds are high because interest is high. interest makes money more expensive, which generally causes less economic activity, not more. so that's a weird bit of causality that you've included in your comment. in particular, in tech many companies will face a reckoning when they're unable to raise at terms they need to survive.

adam_arthur 3y ago
The rate on bonds only matters relative to the rate of inflation. Bond yields below inflation (in aggregate in the longer term), are stimulative, regardless of the nominal level. Financial conditions have been easing over the last few months, not tightening. Fed hikes only impact the short end. Long end is market based