Which is good insofar as we’re going to get plenty more of it (see quote here). PPI upside surprise +1.1% vs. +0.7 m/m (Bloomberg). Core slightly below consensus (+0.4% vs. +0.5%). AIER’s Everyday Price Index near my estimate of (1.18% m/m vs 1.16% nowcasted).
Figure 1: Headline CPI (bold black), chained CPI, n.s.a. (green), CPI for wage earners and clerical workers (red), CPI-ex shelter (orange), PCE deflator (purple), PPI final demand (teal), GDP deflator (pink), AIER Everyday Price Index (blue), all in logs, 2025M01=0. PCE deflator for May is Cleveland Fed nowcast of 6/11. Source: BLS, BEA, S&P Global, AIER, and author’s calculations.
May’s y/y CPI inflation expectation (from U.Michigan) was 4.8%. We get the June expectations tomorrow. As for the PCE deflator, the current nowcast (Cleveland Fed) is for 3.97% y/y.
Conventional settings ofthe Taylor rule (not using Warsh inflation nonsense) put the target funds rate between 4.7% and 6.2%:
https://www.atlantafed.org/research-and-data/data/taylor-rule
The current effective fed funds rate is 3.63%, ao the Taylor rule suggests rate hikes of between 1.1 and 2.6 ppts. Not that that matters if one loves inflation
Five years ago the Fed and lots of economists were insisting that inflation was transitory. Of course, the rate of inflation did eventually drop, starting more than a year later, but the price level, which is more important to most people, didn’t drop.
It’s interesting that few are calling it transitory this time around…except for Trump sycophants.
Interesting…is the difference a changing of the guard and their supporters, or is there some sound economic reasoning behind the dearth of “transitory” predictions this time around?
If you check 5 and 10-year inflation expectations, you’ll see that investors, in aggregate, think war-induced inflation is transitory.
That said, core PCE inflation has been above target (2% y/y) in every quarter since Q2. 2021:
https://fred.stlouisfed.org/graph/?g=1WRtq
When the “transitory” debate got started, we had not yet had 15 quarters of above-target inflation, and likely more to come. If you pay attention to data and to context, and set politics aside, you’ll find a good reason for less talk about inflation being transitory.
Check, for instance, Fed President Schmid’s recent comments:
https://finance.yahoo.com/economy/policy/articles/feds-schmid-warns-against-viewing-102932531.html
By the way, the Fed has no mandate to fuss with the price level, only inflation, employment, financial sector function, bank soundness, liquidity, check cleating… The Fed has plenty to do without worrying with things over which it has no authority.