The game of inflation Whack-A-Mole: price pressures shifted from housing to non-housing services and core goods.
By Wolf Richter for WOLF STREET.
Just briefly here because it’s an interesting twist by the New York Fed on Friday’s PCE inflation reading: it nixes the idea that year-over-year PCE inflation is cooling.
Back in April 2022, when the Fed’s favored inflation measure, the PCE price index, was surging towards its June 2022 high of 7.2% year-over-year, researchers at the New York Fed came out with a new inflation measure that’s based on the data in the PCE price index, but tries to show inflation’s “persistence.” They did this by aggregating the PCE components differently. And they called it Multivariate Core Trend inflation (MCT inflation).
The idea was perhaps to show that inflation wasn’t quite as bad beneath the surface, and that it was less persistent and on its way out, as for most of the time since its invention, MCT inflation has run well below the core and headline PCE price indices.
Today, they released the MCT for January. Oh boy! The PCE price index for January was released on Friday. What the media jumped on was that year-over-year inflation readings cooled a little. What I pointed out was that the month-to-month increase, the three-month increase, and the six-month increase all showed the worst inflation since the spring of 2024, after accelerating relentlessly for months, but that the massive base-effect in services cooled the year-over-year increases in services, and thereby in the core PCE price index and the headline PCE price index (my discussion of PCE inflation for January).
So now here is the MCT for January, which attempts to show “persistence” of inflation, using the same underlying data but dividing it up differently. “Persistence” has become a huge concept after “transitory” was retired by Powell himself.
The year-over-year MCT accelerated to 2.86% in January, from 2.63% in December, the worst increase since March 2024 (red), driven largely by “services ex-housing” and to a lesser extent by “core goods” (excluding food and energy goods).
In other words, housing is no longer the driver of this inflation at the moment. In this game of inflation Whack-A-Mole, price pressures have shifted to non-housing services, and to core goods.
Also shown in the chart are Friday’s figures: The headline PCE price index decelerated to +2.51% (purple) and core PCE price index decelerated to 2.65% (light blue).
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Three lines struggling to stay under 2.5%, let alone approach 2%, is three ways for the FED to see how they are not trying hard enough.
What’s the prognosis—keep rates steady or raise 25 basis points?
They cut rates too early and by too much when they started cutting in response to Wall St.
Let’s do Tariffs! Durrrrr!!
Stock Market Crashes.
Also, btw. Sell your Tesla. Thanks! 🙏🏻
Refineries that supply Wisconsin get from most of their oil from Canada. I noticed that pump prices were up a bit over last week.
I doubt this news blurb will do much.
“The US economy could be shrinking at its fastest rate since the COVID-19 lockdown, according to the Federal Reserve Bank of Atlanta’s GDPNow model, which is now forecasting America’s gross domestic product to fall 2.8% in the first quarter.”
The Atlanta Fed’s GDPNow is always all over the place early on in the quarter. It is just now beginning to get January data, with two-months-plus of data left. It can react furiously to incoming data early on.
Remember who told everyone on this blog it was a big league short and that was with Trump losing the presidency in 2024?
No sense . you sell your Tesla, because you have distain, yet, you are willing to push it onto someone else! Thanks for looking out for the other guy.
1. There is no doubt that inflation is so high. But…Will the FEDs do their job of raising the rates? Nah…
2. There will be a new inflation measure or adjustments or “a rabbit out of the hat” to reduce the rates.
3.”In war, rich give their money and poor give their sons. After war, rich receive their money and poor bury their sons”.
4. Tariffs are higher and higher. Yes, US had tariffs before the federal reserve (1913 and IRS) but was it this high or sudden or unpredictable. Uncertainty is the problem here. Also NAFTA and other WTO agreements assumed no Tariffs. Otherwise, this is Neo-colonialism (or was it Neo-Fedualism)
5. The difference between conspiracy theory and reality is six months, tops
3.”In war, rich give their money and poor give their sons. After war, rich receive their money and poor bury their sons”.
Absurd. WWI UK for example is just one: amazingly it fought the war without conscription for most of it and not serving for the young upper class was social leprosy. You would be handed or receive a white feather meaning cowardice. A classic flick, ‘The Four Feathers’ is about a guy who gets four in the mail. A large number of titles with land estates went to younger brothers as heirs were killed off. In WWII this missing generation made it hard to find senior staff, who would now have been in their fourties.
In WWII the vastly expanded arm, the air force, drew most of its pilots from the colleges or professions, not farm labour, with mechanics also requiring above average literacy. A UK example: The TV series about the English animal vet, James Herriot, is based on his non- fiction books, which as usual are way better than the show. At the outbreak both and his boss volunteer.
A US example: JFK’s exploits are well known but not his brother’s, a pilot who was killed in action.
In the latest news, Wolf Richter has been appointed to be the new Crypto Czar by the Trump Administration. Starting March 1, 2025, his own WolfCoin will be released for sale.
🤣❤️
WolfCoin spiked by 129898% in three hours, to a market cap of $1.3 trillion, then hours later collapsed by 100%, in a perfect awesome rug-pull, the latest sign of how crazy all of this has gotten to be.
When Wolf was asked by reporters about having become the world’s first trillionaire for three minutes, and then having lost it all, he replied laconically: “Let it burn.”
Hahaha 😂
Brilliant, thx for the laugh
– Between For a while Mr. Market thought that the FED would RAISE rates but now this same Mr. Market just last week changed it mind. He thinks that the next move of the FED is going to be a rate cut. But the question that requires to be answered is “When”. And Mr. market is still clueless about that.
“The stories behind Business, Finance, and WolfCoin” !!
Housing supply is rising but many sellers are refusing to drop their price. When stocks and bonds lose value that might change, but maybe not if inflation does not come down as well. Right now everyone is in lala land. traders on twitter are all sure Trump is going to say the right thing and the drop in stock prices will end. They remember how he used the threat of trade wars to press Powell to drop rates. Of course the last time the Fed dropped rates bond yields popped, and not many believe that tariffs stoke inflation, including the bond market. B tariffs A on gizmos, and the gizmo makers in B raise their prices. that’s just naked protectionism and don’t think anyone believes that if US consumers bought only domestically made goods that inflation would be lower.
I heard from reliable anonymous sources that Trump is going to put 25% tariffs on all Whack-A-Mole from Mexico.
Or maybe it was guacamole from Mexico.
And I ordered avocado toast this morning because Jim Cramer was all for it. Paid for with BobCoin.
:)
Mr. Richter,
Reading today’s Almost Daily Grant’s Commentary (Jim Grant, Grant’s Interest Rate Observer) I was mildly surprised to see that Grant’s quoted Wolf Street editor-in-chief and eponym Wolf Richter for commentary on Bank supervision and prudence.
I’d take that as a nice stamp of approval for your work.
Thanks, I didn’t know that.
Jim Grant is an apostle for a particular point of view that has not been given the chance too prove the rightousness of his POV.
Clueless is a too kind characterization.
i recall when he predicted that if interest rates rose 1/4% that the Feds balance sheet would tip the government into insolvency. or we could just call them “deferred assets”.
Grant’s a snitch.
I continue to be amused by the idea that housing is a service! Sure, if you rent a place it is a service. But if you buy a house, it’s not. I wonder what the inflation rate would be if they accurately accounted for the skyrocketing cost of buying a house. Probably at least 4 percent. The people are getting tired of the gaslighting.
1. Financing, homeowners’ insurance, property taxes, maintenance, etc. are services and part of the homeowners’ component of housing.
2. The home purchase price is an asset, just like stock prices. Neither is included in consumer price inflation.
3. During the housing bust, home prices fell for 6 years. If home prices had been included in inflation measures, the US would have shown massive deflation for 6 years even as prices of everything that consumers spent money on every day kept rising.
4. Home prices experience home price inflation, it’s a form of asset price inflation. There is also grade inflation, wage inflation, producer price inflation, etc. Consumer price inflation is its own thing too, and this measure here is tracking consumer price inflation, not asset price inflation.
5. I continue to be amused by people who want home prices to be included in inflation measures.
I have no objection to looking at home price inflation, stock inflation, wage inflation (the Fed is very interested in this), consumer price inflation, or indeed, any kind of inflation. It depends on how you want to define inflation. IMF defines inflation: “Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year.” I would argue a house is a good, like a wrench, only a lot bigger. A house also functions as a service in that it protects the owner from the elements. A wrench also provides a service, by unbolting a bolt.
Stocks are different. When you buy a share, you are buying part of a company that provides goods or services or both. So in a way these companies provide a service to the purchasers of their goods or services. Few people want to make a wrench from scratch to remove a bolt, so they find a company that makes wrenches, and buy one. The wrench is both a good and provider of a service, as is a house.
Okay, some people would say a service involves a person doing something for you. But the only difference between a person and wrench or a house is the number and arrangement of molecules. A big plus for wrenches and houses is that they do not talk much.
Move a couple of times.
Speaking of supervision and prudence…
“The Treasury Department announced March 2 that it will no longer enforce the Corporate Transparency Act or the associated beneficial ownership information reporting requirements.
Furthermore, the agency announced that, “Not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either.”
“This is a victory for common sense,” said U.S. Secretary of the Treasury Scott Bessent. “Today’s action is part of President Trump’s bold agenda to unleash American prosperity by reining in burdensome regulations, in particular for small businesses that are the backbone of the American economy.”
…or maybe it was to unleash more money laundering and helping to hide Russian oligarch funds, idk. Wolf, please tell me you have some reasoning for why this is a good thing, I need some positive thoughts in all this stuff.
But, but, but… my Wolf Street Media Mogul Empire (a corporation) would have had to report under the beneficial ownership information reporting requirements starting January 1. I looked at the documents that I would have had to file. Just one more hassle to deal with. I’m glad I don’t have to do it. I already have to report to the CA Secretary of State. They already have all details. Why can’t the Feds just look it up? Why do I have to file an additional report with the same info?
This kind of reporting doesn’t stop money laundering. It just makes more work.
I took a “Bob the Dinosaur” (Dilbert) approach to my filing after my CPA offered to file for me for a mere $875. I waited for somebody to sue and a judge to grant an injunction. Then I waited for for it all to go away.
Now I don’t have to send in personal information for my wife and I. I will take the small victory.
So, the people who already provide this information carry additional duplicative burden, and so not effective, that makes sense.. Maybe better legislation is to target “shell” companies. Or as you said, you already disclose to CA…so the USG should use available info but those who havent disclosed need to disclose in accordance with State legislation.
anyone who has worked in the corporate world and had to deal with kyc requirements of banks knows how ineffective they are. they’re merely a check the box exercise, and don’t do a damn thing to stop any illegal money from going anywhere. they’re like gun control laws where something is done to “do something” even if it won’t do anything to stop the event that precipitated it.
the cta was along the same lines. i’m glad it’s gone for now.
maybe we hike rates .25 points
If Powell tries that he’ll be arrested and sent to GtMo.
Nah, we’ll probably go the way of Türkiye by slashing rates 3 times this year in spite of any tariff induced inflation headwinds. At this point it remains to be seen what US importers do (e.g. eat it or pass it along). It also remains to be seen what US producers might do (e.g. raise their prices to match the increased costs of imports).
I don’t think Fed rates matter much WRT tariffs. That price increase doesn’t come from more money chasing goods, it’s from a higher cost basis. Higher rates won’t do anything to fix that.
That hasn’t stopped this sort of stupidity (raising rates in response to a supply shock) before — religions are like that.
I just heard that Trump has gone ahead with the idea of creating a crypto “strategic reserve”. If I understand correctly this will amount to using public funds to make a few whales very rich. Looks like we’re allowing the destruction of our nation through the elimination of institution that enforce our laws.
The government already holds 180,000 bitcoin that it seized from gangsters, plus other tokens. In the past, they slowly sold those. They can just transfer these holdings into that reserve and hang on to them; and when they seize more from from gangsters, they can put those into the reserve, instead of selling them.
Excellent response. The crypto nuts thought Trump’s announcement meant he could start buying crypto to fill the reserve, but the only thing he can do is use existing seized crypto to fill that reserve. Buying new crypto would require Congress approval.
Bitcoin is interesting… although it appears its only real facility involves speculation and illegal transactions, such as transferring money out of a country that would rather you not or buying and selling all forms of illegal goods and services (like creating deepfake porn to destroy peoples lives).
What a farce. Calling oil a strategic reserve makes sense to me because it cushions the country from supply and political shocks. We need oil to keep the country warm and mobile and to keep the economy from stalling. What in the world does a strategic reserve of bitcoin protect us from?
Good article that reveals an incongruity between the message and the reality.
Much like the confusion that half truths incite.
Love will save us.
Assuming “non-housing services” includes stuff like ‘education, healthcare, hospitality, and haircuts’ (and dare I add nail bars), then that must be mostly internal to the US and represents local businesses passing on their own inflation to their customers. These are often local mini-monopolies, politely known as a niche. Presumably, those price rises will continue until their customers stop buying, say because of unemployment. Those businesses might be affected by the public sector workers purge unleashed by Trump.
Assuming “core goods” are ‘physical commodities, like TVs and cars’ (excluding food and energy), then a lot of that stuff must be imported and likely subject to tariffs. It remains to be seen if those extra costs can be passed on to customers. If businesses absorb Trump’s taxes, they will likely have to cut staff.
I’m just wondering how long it will be before parabolic unemployment kicks in. Unemployment always rises much faster than it falls.
The only thing I can see is that Trump’s tariffs on Canada and Mexico are pushing long term treasury rates down. Perhaps it’s the only way Trump can get better refinance rates on his commercial properties. Tank the economy for personal gain.
Nicholas, Trump said he wanted interest rates to come down, and Bessant clarified it by saying Trump wanted long-term interest rates to come down. Trump’s tariffs have put fear in the markets and much money has moved from stocks to long-term treasuries, which in fact have seen a dramatic reduction in their interest rates. If this was Trump’s plan all along, I congratulate him, although I seriously doubt that it was. I think even Trump would not want to have the fear of tanking the economy used as a means to lower long-term rates. But who knows?
Put fear in people s minds and inflation will go down. I would say he wanted that all along. Dodge is also cutting a lot of funding to the govt including the education sector (back to 2008 levels). He wants it down to kill inflation so he can restart it again with his economic plans.
Gonna be a whole bunch of moles.
Coming next month, Musk will eliminate the bureaucrats behind all these woke, DEI, communist numbers – no doubt eliminating vast waste, fraud and abuse – and, instead, will deploy a cost-efficient, next-generation, autonomous agentic artificial general intelligence AI that will reliably report inflation hovering between 1.1% and 1.3% for as long as an electrical grid remains operational to power the servers.
I wish JPow would jawbone rate hikes with all this tariff nonsense. That’s really the only thing that would kill this dumb idea once and for all.