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US deflation (and why the Fed does not care)

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Ecofin has promised money to the Greeks, so all is for the best in this best of all possible worlds. The German Bundestag votes on the deal today – Merkel has enough votes to ensure passage, but there may be interest in the level of dissent expressed vocally or in votes.
  • Euro area and US CPI are both due, and both are forecast by the consensus at 0.2% yoy. That is actually misleading as the data is calculated in a very different manner. US CPI inflation is actually deflation if calculated the same way the Euro calculates its CPI numbers.
  • Why is the Fed likely to raise rates if its CPI can be presented as deflation? Because US federal spending links to US CPI, oil base effects will raise CPI and wage growth will raise CPI. Inflation issues are always complex. If only there were a well-written book setting out the truth about inflation…
  • Fed Chair Yellen's testimony to Congress yesterday was unchanged, suggesting she was satisfied with the market interpretation of her first testimony (rate hikes are coming). The Fed's Fisher and the Fed's Fischer are speaking today, and Michigan consumer sentiment is due.