Evening Thoughts

Calling BS

Today was wild, and rough. One of those days I just didn’t get right. Core printed 0.23% MoM, which was 0.03% below expectations and would’ve rounded up to 0.3%. It’s a tiny miss but can drive a huge market reaction. Bonds and stocks both loved it. FX was interesting, as it pretty much called bs on the print. EURUSD actually closed down on the day, GBPUSD and USDCAD were both close to flat, it was really the commodity exporters that outperformed.

So, I am going to follow the lead of the very wise FX market and call bs on CPI/PCE .

First of all, let’s start with what we are dealing with in the data. The below chart is from Harvard Economist Jason Furman and I circled a few measures’ run rates to basically show that inflation is sticky and nothing to be excited about.

Half of the measures in there are imputed based on various mathematical methods. They’re trying their best, but I do think they are not capturing what everyday people are actually experiencing in their lives. The treasury market is starting to figure it out, credit absolutely loves it, mortgages hate it but TIPS remain clueless (check out my report on TIPs if you want more background).

Here’s a number of examples where the official calculations make no sense.