Thursday, October 8, 2020

"Inflation Is Already Here—For the Stuff You Actually Want to Buy"

 Ahead of next week's PPI and CPI a piece the Wall Street Journal did September 26:

If it feels like the price of everything you buy has been soaring, that’s because it has—even as central bankers everywhere worry about the danger of deflation.
The gap between everyday experience and the yearly inflation rate of 1.3% in August is massive. The price of the stuff we’re buying is rising much faster, while the stuff we’re no longer buying has been falling, but still counts for the figures.
Economists will be relieved that the laws of supply and demand are still working, at a time when so much in the discipline is in doubt. But for investors it hangs a veil over the outlook for perhaps the single most important issue for the markets: whether we’re headed for a future of inflation, deflation or a continuation of the past decade’s lackluster price rises.
Start with recent supply and demand. The cost of food at home, where so many of us have been spending our time, was up 4.6% in August compared with a year earlier, the biggest rise in almost a decade. In deserted workplace and school cafeterias, food is 3% cheaper.
Food prices move around a lot, but the same pattern shows for many things sensitive to us sitting at home on Zoom. Few home workers need a new suit or dress (down 17%), makeup (down 3%), hotel room (down 13%) or air ticket (down 23%).
In vogue: sitting at home in your pajamas (men’s nightwear is up 4%), cycling (bikes up 6%), reading for pleasure (books up 4%, newspapers up 5%) and making things (sewing machines and fabric up 9%, cameras up 4%). Medical care is in demand (up 5%), while higher education is much less attractive (tuition fees up 1.3%, the lowest since data started in the late 1970s).
The swings in our buying habits have accentuated the difference between the consumer-price index (CPI) and the personal-consumption-expenditures price index (PCE). CPI captures the headlines and determines the return on inflation-linked Treasurys, or TIPS. The Federal Reserve uses PCE—and the two diverged over the summer.
CPI is assessed based on spending patterns from a couple of years ago, while PCE recalculates spending every month. The latest PCE data is only through July, but showed prices rebounded, rising 0.4% over three months compared with the prior three months, on an annualized basis. CPI was still showing prices falling on that basis—although in August the reopening of the economy pushed three-month annualized CPI inflation above 3%. PCE could be even higher for August, given the calculation method....
Earlier today:
FAO Food Price Index: "September marked the fourth consecutive monthly increase in the FAO Food Price Index"