[New post] Transitory inflation? No, Already Transitioned!
User ID posted: " https://www.youtube.com/watch?v=ezJ6QUkhuLk Transitory inflation? No, already TRANSITIONED! by Emil Kalinowski A review of July's HUGE increase in consumer prices. We conclude these price surges are due to supply problems, base comparison effects and"
A review of July's HUGE increase in consumer prices. We conclude these price surges are due to supply problems, base comparison effects and mostly Uncle Sam stimmy checks. None of which are permanent changes to our monetary malfunction and economic depression.
----EP. 95b TOPICS-------- 00:00 Show Intro: US consumer prices have grown at a 5% annual pace for months; is it inflation? 00:19 Inflation is broad and sustained advances in consumer prices, not temporary deviations. 03:08 Recent high readings in CPI are narrow surges: energy and automobiles. 05:07 Why is it appropriate to strip out food and energy to identify (sustained) inflation? 06:24 Both the headline (2bps) and core (20bps) inflation rates in July were less than June. 07:43 Since 2020 there have been two (transitory) surges in inflation. Was it a fiscal impulse? 09:28 The Services CPI shows a multi-month retreat in inflation. 10:52 Global consumer price data suggests the recent United States CPI rally is an outlier.
-----------WHO------------- Jeff Snider, Head of Global Investment Research for Alhambra Investments and Emil Kalinowski. Art by David Parkins. Podcast intro/outro is "" by from Epidemic Sound.
Emil Kalinowski: Inflation in the United States has hit five percent for three months in a row and yet Jeff Snider head of global research for Alhambra Partners recently wrote a blog post that said there are hints of transitory in the numbers here's the title Inflation More Than Hints Transitory more than hints Jeff we are going to ask you to explain how can this be August 11th 2021 is when you wrote this and we're going to start out with the non-seasonally adjusted full index which increased by 5.37% year over year for July and where do you want to go from there what how did your analysis progress from there
Jeff Snider: Well what more than hints at transitory is that it the numbers exhibit already some transitory nature so that's one thing the other thing is again let's state our premise perfectly so people can understand where we're coming from this is not inflation, inflation is not a temporary price deviation because we've seen these time and again as we just talked about in our previous segment the CPI had hit five percent three months in a row almost five percent four months in a row in the summer of 2008. again in 2000 late 2010, 2011 the CPI was relatively high nobody would confuse those periods with inflationary periods and the reason is because they weren't you can see prices deviate and go up and down all over the place and you can have these temporary periods where the CPI is high and it still doesn't mean it's inflation because inflation is a monetary phenomenon if the monetary system is over abundant to the point that it's causing excessiveness and consumer prices what we would then expect to see is a broad base which means more than just a few prices a broad-based sustained increase in consumer prices for more than a couple months here or there even a year we would expect it to see what's happened year over year which I understand most people are saying yeah we get it that's what we're expecting is going to happen for 2021 and 2022 and 2023. all of these years are we're saying is this is the beginning the start of a period where inflation is going to be it's going to be huge for a long time and what we're saying is as we just went through in the previous segment these historical episodes is no that's not likely to be the case because to have that sustained inflation year after year from 2021 into 2022 you would actually have to have monetary excessiveness which we're telling you the system itself is telling us that that's such a small probability the deflationary potential is so high this reasonable conclude that this is kind of it that once this temporary price deviation runs its course we're going to go back into the same disinflationary quote-unquote puzzle as we had been in since 2000 well really going back to the first financial crisis
Emil Kalinowski: Let's see okay yes bills are telling us that inflationary potential not great but if the consumer price basket was broadly increasing well then we would have to reconsider we'd have to say hmm maybe something else is happening and in these most recent report you point out that it's energy and autos that is really supercharging these numbers Jeff I assumed it was broad-based I think everyone watching is assuming that it's a broad base increase in consumer prices tell us you saw just energy and autos or other things but really being driven by those two
Jeff Snider: Yeah it's other things again you know there's two pieces of the definition for inflation here we just talked about the one which is sustained over a long period of time as a consequence of monetary excessiveness the other one is broad-based it's not to just the food prices go up and nothing else does it's not just you know prices for health care goes out but not really much else does it's where the prices of food health care and autos and everything else goes up all at the same time and what we're seeing I wish you know the PCE deflator is much better because they have the trim mean version of it where you can really see the differences here but by and large you know yes consumer prices are much higher than they were last year some of that is base effects some of that is legitimate price increases in somewhat of a broad-based fashion but by and large this despite spikiness of the last couple months is due to autos and energy the autos in particular especially used car prices are up something like 40 some percent year-over-year even new car prices in the CPI were up six something percent which was the highest in almost 40 years so those are really pushing the CPI whereas other prices yes they're up but they're not up as much and then you have of course oil and energy and gasoline which people are very well aware of
Emil Kalinowski: What about the CPI core rate Jeff that suggests a slightly different picture doesn't it
Jeff Snider: Yeah so if we start to step back away from these narrow channels where the CPI is most extreme we can start by stripping out food and energy prices which you know people say well you can't live without food or gasoline yeah we get it but again what we're trying to analyze here is inflation according to its definition and it's not just a definition for academic terms, it's definitions that tell you whether or not this stuff is going to be sustained because if it can't meet these definitions then it's not really inflation which means it's not really going to be sustained so we're it sounds like we're bringing economists here we're actually pulling these pieces apart so that we can get at what we think is the truth and so if we start stepping back away from these narrow components that are driving the headline spikes start with the core inflation rate which strips out food and energy you know the monthly change in the seasonally adjusted index for July was relatively high but not nearly as high as it has been and so there's already an indication that okay maybe when we get away from food and energy prices that still has autos that still has used cars and used cars in it but it's not as robust and as the headline had been
Emil Kalinowski: 0.0447 core CPI in June 4.27% in July rate of change Hegel Keith McCullough they can't stop talking about it's so important to them they always make that point it's the rate of change
Jeff Snider: It's very derivative gamma whatever you want to call it yeah it is it is an important one yeah 4.27% is still high but it's substantially less than what it's significantly less than what it was the months before so rate of change is changing may be changing of course you never want to go off of one month but we're not going off of one month as we're going to see here yes so you have the headline CPI that was down two basis points from where it was in June you have the Core CPI down 20 basis points from where it was in June and then we get to in other components that don't have that that the used car new car com new car bucket that's really, really driving the CPI and you start to really see transitory develop
Emil Kalinowski: I have pulled up the seasonally adjusted month over month change in inflation, core inflation, then this graph really shows it Jeff doesn't it
Jeff Snider: It starts I think this is where it starts and I think what's also important is what I've labeled there is you can see what's really going on here you can see why prices get pushed up as much as they hit we did this last year people have forgotten already but we did this last year in miniature when the first round of helicopter payments from the treasury hit the hit people's pocketbooks some of that got spent something they got immediately released in the economy added add to that the you know the first initial phase of reopening after the Covid overreactions and suddenly you had this positive force but it didn't last very long because why would it it's a one it was a one-time shot in the arm you know government paying people because they were harmed by a recession that was nothing of their own making certainly not their fault but that's not the same as economic stimulus it was a one-time event and the the necessary results from it were transitory or temporary now we're seeing the same thing again happen early 2021 especially in March when that second helicopter payment really hit what happens we see the same thing again prices spike activity all that stuff goes up in the goods economy but then what once the helicopter payment starts to recede into history why would we expect it to continue to have lasting effects when we just we already saw last year that it didn't and we already know underlying the real economy is it's really not that great so there really isn't there isn't a situation where we expect anything other than temporary effects
Emil Kalinowski: Now there's another measure that you very rarely hear about but in this article you say that it's a another core measure and it services less rent of shelter and you describe it as important very strong compelling indication Jeff I'm showing the graph right now tell us why is this important compelling very strong indication
Jeff Snider: What we just talked about we're trying to get at the in the real substance of the economy not away from you know these narrow channels where prices are really are going up so we get away from the goods economy get away from used car prices for example we get away from energy and start looking at CPI services which is a key component rate about underlying inflation potential and it really does exhibit that transitory you know the kind of a snake like a pattern in the chart which shows you the month on over a month changes pretty much hey it's not just this month where we're seeing transitory pressures starting to you know these transitory things starting to fade it's actually for the third straight month where outside of autos and energy and gasoline and food the underlying the rest of global, the rest of the US economy is starting to fall back into that same disinflationary state that it had been in for many, many years before
Emil Kalinowski: You said global there it slipped out we're going to talk about the global picture in a second and I definitely that's a key point but I wanted to double check if this is right Jeff because this is really hard to believe I think maybe it's a typo quote rising only 0.09 percent compared to June and we're talking about again CPI services excluding rent this wasn't just the lowest single month increase since January it was also one of the lowest single month increases period is that right Jeff
Jeff Snider: Yeah it's not you don't usually see that small of a monthly change and if you go back to the channel you can see it on the chart so yeah July outside of used cars and energy and food and all these other things price of the price environment isn't no isn't anywhere near as accelerating, robust whatever adjective you want to throw in there as it had been over those couple months you know March and really April was the peak and then May and June what we're seeing is what you exactly what we had expected you go back to the podcast history here we kept saying that we thought this would be transitory and lo and behold it's playing out in exactly that way not just markets, not just you know treasury yields and global bond yields but we're seeing these this play out in the actual inflation data just as you would expect it to play out
Emil Kalinowski: Here's a key sentence that summarizes this article in the show combined with continued deceleration the farther out you get away from those effects and you start to see the trend develop more and more, services less rent peaks in April the core also April but breaks in July and now the headline begins to break down from the cumulative quickening so we're seeing it we think okay maybe in isolation if we just saw just this data we could say well we don't know yet but we see treasury bills suggesting also a deceleration, a poor monetary condition and earlier you said global Jeff what's happening in Europe, Japan, China Britain are any of those countries signaling rip-roaring inflation or are they also corroborating the message we see out of treasury bills and this inflection in CPI
Jeff Snider: Yeah that's another indication that um that the US consumer prices are being outliers, extreme outliers as we said before I think we've shown the graph before if you graph from the US PCE deflator version of inflation against the European HICP version of inflation up until around February and March of this year they had been very closely correlated then all sudden US prices they just explode upward whereas around the rest of the world everybody's like what inflation there's no inflation here China inflation never got more than 1.3% and now that's starting to decelerate in exactly the same fashion the Japanese barely got to the plus sign they're still more negative than positive in the Europeans as I said Europe even with all of the base effects in their numbers still only got to the continent-wide still only got to about 2.2 percent HICP which is you know half the rate for the PCE deflator and less than half the rate of the CPI so US consumer prices again if we're if we're coming up with a definition of inflation sustained the market says not much potential for it to be sustained broad-based when we break down the data it's not really so broad-based as maybe we've led to believe and then there's this global component to it which is inflation is really a global monetary phenomenon not a domestic US dollar phenomenon so if we're not seeing inflation come up in all these places around the world it's another check mark against the idea that inflation in the US is going to be some sustained monster all of the great inflation of the 1970s
Emil Kalinowski: In other words should inflation rates continue to play out as they have each simply the product predictable results of yes transitory factors having their day and then fading away into ugly history from supply problems to base effects and mostly Uncle Sam these aren't permanent changes to the situation. Jeff earlier I mentioned Britain and in part three we're gonna discuss Britain and their inflation situation but in a broader overview of how their central bank has functioned worked and the big, big, big change in 1998
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