![]() Finally, it is also worth noting that “Super-Core” inflation, which excludes the cost of shelter and has been referred to by Jerome Powell recently, fell to 0.1% MoM, its lowest reading in 8 months. Food inflation came at 0% MoM for a second consecutive month and has been in a descending trajectory for nine months now. ![]() Although Gasoline prices did increase in April this was attributed to WTI prices increasing by 25% from mid-March to mid-April since then WTI is down 13%, which should be reflected in May’s numbers. Regarding the also volatile Food and Energy categories we had good news. This jump in Used Cars prices took the monthly Core Goods inflation to 0.6% but it is unlikely to be sustained in our view which should bring Core Goods prices off this mini peak in coming months. In fact MoM Core Goods inflation had hovered around the zero mark since September last year. Core Goods inflation had found a floor in the last few months in line with the normalisation of supply chain issues. Core Goods inflation came at 0.6% MoM, but a good chunk of this is explained by the volatile Used Cars component, which jumped 4.4% MoM. Services inflation (which includes Shelter) came at 0.4%, unchanged from March’s reading. Having said that the timing and magnitude of the moves were a bit uncertain so it’s definitely good news to see this in the actual data. It is worth noting though that a softening of Shelter inflation was widely expected given the strong correlation with past house price inflation and the latter is certainly trending downwards currently. The annualised monthly 0.4% in April though equates to 4.8% and if this 0.4% MoM stays around these levels that would shave off just over a percent from the inflation number alone. ![]() The Shelter component (which includes the Owners’ Equivalent Rent) continued to decline meaningfully from a monthly figure of 0.8% in February, to 0.6% in March, to 0.4% MoM in April while on a YoY basis this component, which accounts for 34.5% of the headline basket, is still running at 8.1% and showing signs of a peak rather than a decline. Although we think the MoM data remains too high for the Fed to celebrate a triumph in the uncomfortably long battle against inflation, some of the trends and details in the report are encouraging. Nonetheless, if the key considerations identified in this Policy Brief remain in place, and if monetary policymakers respond to evolving circumstances in a sensible manner, the inflation picture should look considerably better in the next one to three years.The eagerly awaited April CPI data for the US finally arrived yesterday, with the actual numbers closely matching the consensus forecasts, with both Headline and Core at 0.4% MoM, and the YoY numbers at 4.9% and 5.5% respectively. As a result of the war, the inflation situation will probably get worse before it gets better, and could do so in dramatic manner if Russian energy exports are banned altogether. The statistical analysis in this Policy Brief was conducted before Russia invaded Ukraine. The authors find the 2021 surge in inflation resulted mainly from COVID-19-related sectoral developments rather than the classic situation of aggregate demand outstripping the overall economy's long-run productive potential. This Policy Brief concludes that although the Federal Open Market Committee (FOMC) was too optimistic in the projections it issued in December 2021, the broad contour of its baseline inflation outlook for 2022 and beyond remains sensible. Considerable debate now surrounds the question of whether the Fed is too sanguine in anticipating that too-high inflation will mostly take care of itself over the next few years, even as the unemployment rate remains low and monetary policy remains accommodative. The Federal Reserve and most other analysts failed to anticipate the surge in inflation in 2021.
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