Breitbart Business Digest: Inflation has been in high gear for six months

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Inflation is rising for the second month in a row

The case that the economy is moving towards a “soft landingsuffered a sharp setback on Thursday with the release of data showing inflation accelerated late last year.

The Ministry of Labor said the main measure of inflation the consumer price index (CPI)The figures showed that prices rose 0.3 percent in December, a sharp increase from November’s 0.1 percent and October’s flat reading. The twelve-month index rose from 3.1 percent in November to 3.4 percent.

Wall Street had been bracing for a rebound, but not as big as the economy had delivered. The consensus estimate was for an increase of 0.2 percent for the month. Estimates for the annual increase ranged from three percent to 3.3 percent, which means the actual result was higher than all estimates from the Econoday study.

This is the second month in a row with rising monthly inflation ratesAt best, this suggests that the glide path to lower inflation that many on Wall Street had hoped for may involve many more bumps than expected. While it’s easy to dismiss the one-month increase as nothing more than volatility, the second-month sequential acceleration calls for attention.

The graph of twelve-month inflation tells an important story. It shows that Inflation reached a low point in June and has been moving sideways ever since, with deviations upwards. The disinflationary forces – mainly restored supply chains, a return of women to the labor market and smaller excess savings from stimulus payments – that have driven inflation down for 12 months appear to have run their course.

While some of those still committed to the disinflation narrative have described this as a “stabilizing” decline in inflation, the truth is that – in the words of Ben Hunt by Epsilon theory“The disinflation stopped cold turkey six months ago.”

The six-month annualized CPI also rose, as Daryl Jones said: HedgeEye’s Director of Research, listed on X.

Our favorite measures of underlying inflation tell the same story. Both the median CPI and the 16 percent reduced average CPI were unchanged in November and both are higher than in October. If we annualize December’s figure, average inflation at 16 percent trimmed is 4.3 percent and has been rising for two months. The annualized figure for the average annualized CPI fell in December, but remains at the extraordinarily high pace of 4.8 percent.

The Atlanta Fed tracks what it calls “sticky inflation.” the inflation of goods and services in the CPI basket that prices do not change often. These rose by 4.6 percent year on year in December, after an increase of 3.6 percent in November. On an annual basis, the series has increased by 4.6 percent.

In short, the inflation data suggests this is the case heading for “no landing” instead of a soft landing. Inflation appears to be stuck at levels well above the Fed’s target.

Give me shelter

Although the soft landers and impeccable disinflationists have been predicting that for a year prices for accommodation will stop contributing to inflation soon, but housing prices continued to rise in December. In fact, they contributed more than half of the monthly increase in the overall CPI in December, with rents rising 0.4 percent and the equivalent rent for owners rising 0.5 percent.

The large contribution to shelter has led some inflation watchers to try to exclude shelter from inflation figures. This is probably a mistake. Shelter inflation does not necessarily lead to an increase in headline inflation just because it is a major contributor to inflation. What really happens is that higher rental costs suck up inflationary pressure that would otherwise drive up other prices. So looking at CPI ex-shelter tells us nothing about underlying inflation.

Some analysts looking at CPI’s ex shelter may be confused by the fact that Jerome Powell has often said that he is looking at a measure of the services side of inflation, which excludes housing services. However, this does not mean that housing inflation does not matter, or that it can be safely decoupled from headline inflation. That’s because the Fed is very focused on the danger of inflationary pressures in the services sector, much of which comes from pressures arising from higher wages. Excluding housing from this calculation limits the focus to the contribution of rising wages.

On Thursday, many again argued that the shelter’s contribution to inflation was only because the way the Department of Labor calculates it means it inputs the figures with a delay. The problem with reading inflation as lower now by looking past the lag is that it requires reading inflation as higher earlier. Lodging prices have indeed risen, and if you try to take them out of the current figures you have to add them to the past figures.

Services are still popular

The pace of services inflation declined somewhat. Services excluding energy services increased by 0.4 percent on a monthly basis, compared to 0.5 percent. Without completion, however, progress was less impressive. Monthly prices for core services rose by 0.47 percent in November and 0.44 percent in December. only a three basis point move After rounding, this appears to be a decrease of 10 basis points.

Disinflation in the services sector is unlikely to continue as the the labor market remains hot. On Thursday we learned that the number of applications for unemployment benefits did not increase at all last week compared to the week before, to 202,000. Without greater slack in the labor market, wage increases are likely to accelerate and inflation in the services sector will follow suit.

The market remains convinced that the The Fed is still on track for a rate cut in March. In that respect it may be correct. But a rate cut in March, despite data pointing to stabilizing or rising inflation, is likely extremely politically provocative. Is that a risk the Fed is willing to take?

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