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Fake inflation?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US Fed Chair Yellen commented on the need to monitor inflation in this week's testimony to Congress. Today, we get the release of US consumer price inflation. However, in today's world, statistical quirks and geeky weirdness play a larger role in determining inflation than in the past.
  • A 0.4% hit to CPI from a price change that is not really a price change is more noticeable when inflation is 2% than when inflation is 5%. Statistical adjustment has a role, but statistical adjustment is not the same thing as the inflationary trends policy-makers should focus on.
  • The US consumers' passion for the shopping mall will be displayed with retail sales (auto sales may lag other sales). An opinion poll on consumer sentiment is due – the Michigan index has corrected a little from its unrealistic highs, but not much.
  • Italian inflation and trade data is due. As a weaker Eurozone economy, investors tend to overlook Italy; it does not fit the better growth narrative very well. Data yesterday showed the number of Italians in poverty has nearly trebled in the past decade, an inequality made worse by inflation inequality.