Back in the more innocent days of 2010, we had Sarah Palin – “Drill, baby, drill” (more innocent because folk were just circulating doctored photos of President Obama, instead of threatening to kill elected officials). Now, we have a new chorus of people asserting that allowing more permitting would relieve gasoline price pressures. Well, from the Dallas Fed (courtesy of Bruce Hall), some text in plain English.
Financial Market Signals
Five year inflation breakeven shrinks, ten year – three month spread dives, TIPS and expected real rates rise above zero. The S&P500 and Bitcoin falls even as VIX remains at sub-Trump levels.
Long Horizon Unbiasedness, Updated
Some key interest differentials, through March:
Different Measures of Consumer Inflation
Official, chained, sticky price, 16% trimmed, and (for March) PCE deflator.
Inflation-Disinflation-Deflation Illustrated
Yesterday, a discussion on Marketplace (w/Justin Ho) about how these terms fit together. In order to explain, consider a broad price index (e.g., CPI). Then one can illustrate these concepts graphically:
Year-on-year vs. Month-on-month inflation for Headline, Core
Dramatic plunge in headline CPI m/m inflation, but both headline and core surprise on upside.
Inflation Adjusted Wages since the Pandemic
Inflation exceeds average hourly earnings in the aggregate (private sector) and for Leisure and Hospitality Services (production and nonsupervisory). But they are still ahead of 2020M02 levels.
Guesstimating the US-Euro Area Core Inflation Differential in April
April HICP numbers are out for the Euro Area. The US reports April CPI on Wednesday. Using the Cleveland Fed’s nowcast for April core (0.52% m/m vs. Bloomberg consensus 0.4%), we have the following picture.
US-Euro Area GDP Performance Pre/During Pandemic
We now have Q1 GDP for the US and Euro Area. While US inflation as measured by CPI/HICP is higher than Euro Area (US core accelerating relative to EA by 0.7 ppts since the pandemic), US GDP growth has also been higher.
Five Year Inflation Breakeven, Estimated Expected Inflation, and Oil
Five year inflation breakevens have risen tightly with oil prices, while accounting for inflation and liquidity premia implies a more gradual albeit more steady increase in implied expected inflation.