Courtesy of BLS, AIER, and (for nowcast) Cleveland Fed. Prepare for impact.
Figure 1: CPI all urban (bold black), CPI for limited service restaurants, n.s.a. (green), AIER Everday Price Index (red), predicted value using first differences, contemporaneous CPI and lagged AIER EPI (red +), all in logs, 2025M01=0. March observation for CPI is Cleveland Fed nowcast as of today. Predicted AIER EPI uses 2023M04-2026M02 data, nowcasted CPI for March. Adj-R2 is 0.52. Source: BLS via FRED, BLS, AIER, and author’s calculations.
The Cleveland Fed headline CPI nowcast incorporates data on CPI, PCE, and daily oil and weekly gasoline prices. Presumably, as oil prices continue to rise (near $109 today for Brent, as gasoline prices at weekly frequency hit $3.72 (week ending yesterday), the nowcast for March will presumably rise further.
I project (ad hoc) AIER’s EPI for March using a first differences regression estimated 2023M04-2026M02, yielding an adjusted R2 of about 0.52. The nowcasted March CPI is used to project the March AIER EPI. The seemingly disproportionate jump arises (in a mechanical fashion) because the elasticity of m/m EPI growth to m/m CPI growth is around 2.
The Fed’s Summary of Economic Projections turned up an interesting result for inflation expectations. The median estimated for PCE inflation this year in today’s PCE is 2.7%, up from 2.4% in January. The median estimate today for core PCE is also 2.7%, up from 2.5%. So core PCE accounts for 0.2 ppts of the 0.3 ppt rise in the median PCE estimate.
Either the Fed folk think there will be a small impulse to energy costs from the war that will have a large impact on non-energy prices, or the energy price spike from the war isn’t the proximate cause of higher expected core inflation.
At the same time, there is no change in the SEP’s median estimate for the year-end funds rate. Nor is there any change in the median estimate for the unemployment rate, so that doesn’t account the the lack of expected policy response to higher expected inflation. The higher rate of inflation reflected in today’s SEP is, as they say, “transitory” and doesn’t require FOMC action.
By the way, Powell says tariffs are the main cause of above-target core inflation. He did not, however, address the increase in expected inflation in the SEP, that I could find.
gold fell quite a bit today, something I expected it to do before the war began. it was overbought at that point. seems the drop today indicates traders may not be too concerned about war contagion. 10 year yields are rising and gold is falling, I don’t see that as a risk concerning trade.
private sector employment showed no growth? first time ever? nice economic policies we must be running. along with inflation increasing again, higher than expected. gap is slowing.
looks like stagflation is where we are headed. unless president twitter decides to make another bombshell move and cause a recession.
and now Putin is delivering oil to Cuba (and who knows what else, because we have gutted our national intelligence force.) guess trump read him correctly. he is a man of peace. and they get along biggly.
maybe bruce hall has some insight on this issue, since he was a working warrior all those years ago. the government expects TSA agents to work for free for months at a time? all so that they can continue to permit homeland security agents to brutally assault residents (citizens and noncitizens, they don’t seem to care)? really, the ask is that HSA simply stop assaulting people on the street, and conduct your actions like any other agency with responsibility to the public. no need to play Rambo with a face covering. but republicans are willing to destroy the travel industry to protect a thug army? outrageous. when the war in Iran subsides, I will not let this issue go unnoticed. president chaos likes the distractions, but this is ridiculous.