Daily update
Daily update
- The Truth About Inflation is complex—a subject worthy of an entire book. US consumer price inflation fell less than expected, upsetting markets. Almost a quarter of the CPI basket is the fantasy Owners’ Equivalent Rent, a price no one pays. The cost of living for homeowners is rising less than CPI. Fed rate hikes will not lower Owners’ Equivalent Rent at all, and indeed may be increasing it. Rate hikes could fuel inflation.
- Regional inflation variations are unusually large. Overall inflation in New York and San Francisco is roughly half that of Phoenix. New car prices rose 6.1% in Los Angeles, but nearly 33% in Baltimore. Clothes prices fell sharply in Seattle, but rose rapidly in Detroit. This is a more complex picture than “CPI up, rates up”. The fact that financial centres have lower inflation might bias market perceptions.
- UK inflation data slowed a little more than expected in August. Even with the government’s latest price caps, energy prices will add to inflation in the coming months—but fear of those price increases has softened demand, squeezing profit margins that underpin inflation.
- US August producer price inflation is expected to slow more significantly—PPI is generally untroubled by fantasy prices, and better reflects corporate pricing power.
