I've mentioned before that the official definition of rent inflation is all but useless since (a) it's always about six months behind and (b) it uses figures for all rents, not just new rentals, which are all that really matter. So what happens if you take core inflation but then swap out the official rent numbers for better ones? Jason Furman has the answer:
Updated core CPI swapping in spot rents on new leases for all rent on existing leases.
Core CPI w/ spot rents up at a 2.8% annual rate over the last three months (and actually 0.0% in October). That compares to a 5.8% annual rate for actual core CPI. pic.twitter.com/hA6xnyN4zJ
— Jason Furman (@jasonfurman) November 16, 2022
What this tells us is that not only has core inflation been steadily dropping for the past year, it's now below 3%. That's only barely above the Fed's target.
Core inflation is now at pretty normal levels, and there's really nothing much we can do about non-core inflation (food and energy). It's long past time for the Fed to see the light on this.
Let's hope the Fed notices and lays off more rate hikes.
Given this lower inflation rate, that means real wages are actually doing quite well and perhaps will be even better over the next few months. The Fed has been pretty explicit that real wage increases are a problem in need of solving.
A skeptical person might realize that the Fed was still dovish when 'actual' inflation was higher and real wages were lower but hawkish when 'actual' inflation was falling and real wages were performing better. Or we can assume that the Fed doesn't understand the available data.
+1
Now that I’ve lost 20% in my retirement portfolio I have to work 5 more years! Thanks for nothing. This whole economy is a scam. The federal reserve wants companies to lay off people but then made it impossible for older workers to retire. And then punish younger renters and home construction workers by crashing the housing market with high interest rates.
Should’ve just sent NATO to defend Ukraine and kicked Russian ass. Then we could steal their gas and oil like we did in Iraq.
Aww... did mommy raise your rent on your basement unit again?
Like +15.
Ditto. Best comment yet!
Ditto on the ditto. 👍👍👍
Nothing the Fed can do at least. Fiscal policy has some room - open the Strategic Snack Cake Reserve and drill baby drill for geothermal.
Yeah, and gasoline prices have been steadily creeping down, too. That's what happens when you elect Democrats.
Clearly, it's bad news for Biden and the party.
When did you get hired by the NYT?
It would be nice with the election over if they would stop overreacting and back off a bit to see where things were going.
I'm not optimistic, though. The Fed loves fighting inflation, or potential inflation, or the hint of a possibility of inflation.
A little push back. The spot rental market lets you see a snapshot of what people looks for places are experiencing, but does not reflect what most people are currently paying in rent. They will be paying more--but not until their lease is up.
Of course raising rates will decrease housing starts and make building apartment buildings more expensive too....
Right. This is not my area of expertise, but if "new" rentals do not include rentals for people staying in place and signing a new lease (usually a one-year lease) or on a month-to-month, then I'm not so sure that "new rentals . . . are all that really matter." Plenty of people were hit with 10%+ rent increases after COVID moratoriums ended.
One other thing, maybe the Fed was looking at that, which is why they bumped up rates as fast as they did....core inflation over 16%--yikes!
But they waited until 9 months after it hit 16% to increase rates?
they were just bidding their time....
😉
Perhaps they were listening to Kevin and the rest of Team Transitory…
Part of it was as people fled more populated areas and tried to find places with lower population density during the different surges in Covid. Or tried to find their own place. etc.
This is interesting. Given this alternative way of capturing housing costs, team transitory appears to have been spot on.
The inflation of early 2021 was much steeper than originally thought and the decline has also been more rapid than thought.
This adulterated "core CPI" is not the basis for Fed decisions. It doesn't look stable. Just cooked up by a pundit who doesn't have the ear of anyone on the open market committee.
The fact that inflation has come down doesn't mean it couldn't accelerate again. Early days yet. Let's at least be confident in the data. Also, I've seen differing estimates on excess household savings. IIRC Kevin seems to think it's mostly been spent. But I've seen estimates to the contrary. We may be out of the woods on inflation, but maybe we're not there quite yet. I think it is fair to say we've gotten closer to having this burst of inflation behind us; but the Fed is unlikely to stop tightening quite yet. Nor should they.
I do suspect they'll lay off the 75 basis point jumps, though, in favor of a fifty or two, and then to a 25. And then maybe they'll be finished (February-ish is my guess) tightening.
(The very act of hiking 50 instead of 75 basis points is likely to be greeted favorably by financial markets; and this, needless to say, will have a mildly stimulative effect).
Indeed this is the lesson of the 1970s (pause and then reacceleration as
One should read Krugman
https://www.nytimes.com/2022/11/11/opinion/inflation-democrats-midterms.html for rather more prudent reading.
Of course Drum is deep into motivated reasoning having spent nearly two years claiming the Fed and others were entirely wrong, while never admitting he has been wrong on inflation for that time period
Martin Wolf equally of FT
https://www.ft.com/content/b52856ef-0f98-4c80-8e0b-dec49c055628
Central banks are right to act decisively
The worst possibility would not be for disinflation to be done too slowly but for policymakers to give up too quickl
The chart in KDs post might make the case that team transitory was correct all along once you adjust for the distorted way that CPI accounts for rent. Rapidly increasing rents in mid to late 2021 weren't going to show up in CPI until 6 to 12 months later.
Recognizing what a particular metric is actually saying isn't motivated reasoning.
I did hope the Fed would take their time with rate hikes early in 2022, but inflation has persisted for many months since then. If it seems to be coming under control, maybe the Federal Reserve has been getting something right.
There are only two more years until the Presidential election. It's critical that the Fed tank the economy to help the Republican candidate.
Riiiight. Because four of the seven current members of the Fed board are actually Quislings rather than Real Democrats. https://web.archive.org/web/20221021031559/https://en.m.wikipedia.org/wiki/Federal_Reserve_Board_of_Governors
And…. Given the current chair was reappointed by Biden, is Biden too a Quisling, or was that an early duping a la his belief he had a deal with the Saudis to actually increase production?
Not all the inflation hawks are Republicans; the Democrats, like some commenters here, justify that dogma by arguing that inflation hurts working people. Which it does, but so do higher interest rates and consequent layoffs.
Change hurts some people some of the time.
Elevated inflation hurts lower income people disproportionately and is hard to master when it reaches sustained levels - as macro-economic history has shown in multiple cases (Argentina, Germany, Venezuela etc.)
Higher interest rates (which is ridiculous to whinge on about when interest rates are really returning to more normal historical levels after years of highly distortionary low levels that have benefitted who.... well look at Private Equity and asset managers...)..
the problem is the Lefty Left incoherently knee jerks as anti anything involving money and banks.
Describing a current rate as 'more normal' is a silly way to put your thumb on the scale.
Imagine describing worsening education levels or vaccination rates as 'more normal'. Maybe removing public Ssewage and power is just a return to normal after many decades of distortion!
No it is not silly - it is Econometric History and the level of rates seen in Post WWII developed economies right up to 2008 crisis that set off rate repression.
Your idiotic analogies are irrelevant strawmen.
An interest rate of 5% base is not any way comparable to public sanitation infrastructure - as one can see from econometric history.
https://jabberwocking.com/so-how-about-boomer-rents-vs-millennials/
If one reads the fine print on that chart Kevin repeats one sees one of the sources of alternative data is … Zillow.
The Census numbers may be more accurate, but if they are months late, one needs accurate dynamic predictive models of rents across local markets. Without good models, one risks over- or under-correcting. I’m pretty sure that’s where we are, with respect to most price drivers, not just rents …
Of course, timely but noisy data also introduces risks …
"and there's really nothing much we can do about non-core inflation (food and energy)."
Food and energy are things people have difficulty surviving without. Non-core inflation could be reduced by lowering energy costs. Hmmm - like when we were energy independent during the Big Talker's Presidential term.
I'm perhaps being too credulous, and failing to recognize snarcasm but ...
We are still I believe "energy independent" - we produce at least as much oil/gas/coal/whatnot as we consume.
What we are not is "energy market independent." Fossil fuels especially are an international market from which we are not separated.
Now, were we to get virtually/nearly all our energy from wind, solar, and nuclear, we would no longer be subject to the vagaries of the international market in fossil fuels.
+1
Someone did a plus 15 above so I will go with +16.
༼ʘ̚ل͜ʘ̚༽
No, I was not being snarcastic. Your reply made me do some interweb searches, and I was wrong. We are domestically producing oil at a slightly lower rate than in 2019. And the trend is upward after the oil demand dropped during covid.
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m
It is hard to admit you are wrong. No snark. It is hard for all of us. The question is, are you going to continue to listen to the same news sources that told you Biden is trying to prevent increases in US oil production or purposely destroyed it? If you hear Biden wants to defund the police or supported riots (or some other made up news), are you going to believe it or are you going to stop using that news source?
╚(ಠ_ಠ)=┐
Don't be a jerk.
Having been hoist by my own petard on numerous occasions in the past, and no doubt more in the future, hang in there.
I believe that both oil and gas production are now higher than they were during the prior administration.
Never at any point has the US been free of market prices and worldwide supply influences.
I hear that if you get drunk, stumble to your basement and repeat a bunch of lies then they magically become true. No, seriously. That happens. You don’t have to understand anything so long as you can repeat lies. Just keep lying and then the world changes.
For those of you out there who don’t follow such things, we’ve been “Energy Independent” since the Obama years. Not that it matters. For 50 years the PRICE of oil has been determined by how much foreign dictators decide to pump out of the ground. And all the lies in the world doesn’t change that.
Great
While Kevin could be correct, I suspect we will still see at least one more interest rate hike from the Fed.
We can do quite a bit on energy inflation. We can double or triple the subsidies for higher efficiency heating/cooling equipment and building energy efficiency upgrades. We could offer incentives -- free passes -- for public transportation for anyone who wants it. ¯\_(ツ)_/¯
And while we are at it, solar energy to electricity does not "inflate." Which is really obvious when you get your own system. That is typically not mentioned in discussions, what is usually talked about ad nauseum is how solar can't replace peaker plants or whatever 100%.
A quick scan of battery farms in Washington State reveals a nice list of solar/wind/battery projects, with the battery taking on at least part of the task of a peaker unit. We even have a couple of large scale battery manufacturing outfits setting up shop our here.
Solar in and of itself indeed cannot do it all. Not without storage anyway. And given some of the sorts of weather we can get - cloudy and still or dark and still - even solar plus wind needs nontrivial storage. Or nukes.
Even with storage (which at this times remains too expensive for broadly economical application) solar can not do it by itself as technical issues like grid resonance stability as well as baseload are difficult and impractical to resolve (in an economic fashion). This is not the observation of an anti-Solar, my literal job is financing industrial scale RE, and the more that is done the better.... within technical limits. Same with Wind.
Simplistic analyses by Eco-NGO types get this wrong as does knee-jerk Lefty opposition to Big Energy.... (as wrong although in opposite direction as the knee-jerk and utterly idiotic Righty opposition to RE as if it was still 1970 or 1980 or 1990 cost and technology).
Baseload and grid stability service from nuclear and similar non-carbon emitting is absolutely critical - as is a radical and urgent uprading of national and intra-nations grids for both more robust local scale distribution and more critically long-distance transmission to enable RE distribution for maximised potential re production peak versus usages.
That means streamlining and accelerating permitting and yes running roughshod over local NIMBY if we are to have any chance of meeting goals... and are serious about climate as an emergency and a crisis rather than "crisis" and excuse for whinging on or pushing pet ideas sans real engagement with infrastructure binding constraints.
My cousin could truly receive money in their spare time on their laptop. their best friend had been doing this 4 only about 12 months and by now cleared the debt. in their mini mansion and bought a great Car. That is what we do
My cousin could truly receive money in their spare time on their laptop. their best friend had been doing this 4 only about 12 months and by now cleared the debt. in their mini mansion and bought a great Car. That is what we do.. https://earningblue.blogspot.com/