Morning Report: Inflation moderating?

Vital Statistics:

  Last Change
S&P futures 4,666 -21.2
Oil (WTI) 78.72 0.08
10 year government bond yield   1.68%
30 year fixed rate mortgage   3.31%

Stocks are lower this morning after some inflation data came in higher than expected. Bonds and MBS are down.


The second estimate for third quarter GDP was revised upward to 2.1%. The PCE price index was unchanged at 5.3%. Ex-food and energy, it rose 4.5%. The PCE price index is the Fed’s preferred measure of inflation, and it is obviously higher than their 2% target rate. Wages and salaries were revised upwards as well.


Personal incomes rebounded in October by 0.5% after falling 1% in September. Consumption rose 1.3%. The PCE inflation index rose 5%, and if you strip out food and energy rose 4.1%. Note that this is below the averages for the third quarter (which we saw in the GDP report). This is at least one indication that inflation is beginning to moderate.

Just one quick note on inflation – home price appreciation does get incorporated into the inflation data via rents and “owner’s equivalent rent” which is a proxy for homeowners. That said, it generally shows up with a 12 – 18 month lag, so the current inflation numbers have yet to capture the torrid price appreciation we have been seeing this year.

It is important to note that inflation is as much a psychological phenomenon as it is a monetary one. It is more than simply “too much money chasing too few goods.” It is people wanting to get ahead of demand as well. Say for example, if you heard COVID cases were rising and we might be heading towards another lockdown, would you stock up on TP? Of course you would. So would everyone else. That would create shortages and increase prices.

Workers seem to be in the driver’s seat for the first time since the 1970s. Automatic cost-of-living increases were built into union contracts, and even non-union workers began to expect annual cost-of-living wage increases. Depending on how long this worker shortage lasts, these things may become a feature of the landscape going forward. It will be hard for the Fed to hit a 2% inflation target if wages are rising 4% a year.

At any rate, even if commodity prices begin to fall, home price appreciation is going to start showing up in the numbers starting next year. While some of that is certainly not “real” inflation – your cost of living doesn’t increase just because your home value rises – consumers are going to focus on the headline number and demand wage increases going forward. Unless the supply chain issues magically disappear we have the pieces in place for a long-term secular increase in prices.


New Home Sales rose 0.4% MOM in October, but are 23% lower than they were a year ago. The median home price rose 18% to 407,700.

43 Responses

  1. Hoo boy! Some triggering is occurring.


  2. Another example of how the justice system is racist and white supremacist.


  3. Wife [MS in taxation] says likely 87000 auditors are being added by next March at IRS. 87000. She says the industry [tax lawyers and CPAs] dubs it as a coming audit avalanche.

    She can afford to join me in retirement. This may be the exact right time.

    Happy TG -all.


  4. Happy Thanksgiving to everyone, my favorite American holiday.

    For the record, this will be the 15th, and hopefully the last, Thanksgiving that I spend on foreign soil. We had some friends over for an early Thanksgiving meal last weekend, and it was the first time any of them had ever had pumpkin pie. It was a hit. More notably, my wife bought a can of the UK equivalent of Reddi-Wip to serve with the pie, and none of our guests had any idea how to work the spray top. They had literally never used one before. Who knew that the whipped cream spray can was primarily an American novelty?

    Anyway, have a great day all. Wish I was there.


  5. George, JB is [finally] at odds with EW. He is renominating Powell, and EW is openly pissed b/c she wanted the one Brent wrote about. It is past time for JB to show some independence from the self styled progessives and “democratic socialists.”

    He made a huge mistake caving to them on their demand to hold up the bipartisan infrastructure bill in the House until they got a vote on their then as yet unwritten Wish List. The delay on the infrastructure bill passing is enough for it to have no impact on the mid term elections.

    My wife watches CNN often enough to report to me that they have totally sided with the left wing of the Ds – they criticize Manchin in almost defamatory terms, she thinks. It is obvious to any adult that Manchin reps WVa – just like Booker reps NJ and is pro big pharma and when Biden repped DE he was pro bank, pro credit card, and Conn Ds are pro insurance. It is one bad thing for the purist left to say my way or the highway, but a news agency, even one sympathetic to an issue, should be able to understand and explain the basis for regional opposition.


    • I understand what you’ve written Mark but I see no evidence that Biden is actually in charge and making decisions. It seems obvious he’s cognitively out of it and Klein, et al are making the decisions. As for the “Infrastructure Bill”, I’m not convinced it was going to do anything re polling anyway. The wheels have come off the bus because the policies suck, especially the moronic COVID decisions as well as the incoherent energy decisions. The Admin has sunk and you’ll see more and more abandonment by elected D’s. It truly seems like the Carter years are the best case scenario for this Admin right now.

      But hey, no mean tweets so that, pardon the pun, Trumps all I guess.


  6. Brent – the news that we are at virtually full employment but jobs are going begging must have been analyzed in depth somewhere. All I see are political points in the media, no analysis.

    For example, I have not seen anything as to whether the aging demographic and restricted immigration have shrunk the labor force [as one might think, rationally].

    I have seen for some years that too few person have opted into the skilled trades, but apparently there just are not enough persons to do almost everything.

    I suppose this will hasten mechanization and robot labor if it continues.


    • I don’t think anyone has a good answer for what’s going on. Even if you read the Fed’s analysis, they throw out a bunch of disparate reasons but I think no one really knows.

      The WSJ had an article saying that a record 4.4 million workers quit their jobs in September


  7. Good Thanksgiving day column from Taibbi.

    I don’t know if he’s been red-pilled or I just never gave him a fair reading in the distant past. But damn, one of us has changed over the years for sure.


    • these “you know it’s genocide” type the kids who would kneel on jacks at Sunday school because it hurt more. corporal mortification.
      except they’re doing it to the rest of us.

      “But the historical self-mortification has gotten out of hand”
      maybe i should read the whole thing first.


    • I think certain factual errors he made coupled with his over all snark on topics you personally were an expert on colored your take on him.

      He’s also changed tone somewhat after leaving Rolling Stone and getting canceled from his gig at First Look media. And by pointing his skepticism/snark at the media itself, he’s found a worthy target.

      Both he and Greenwald are now doing interactive discussions with subscribers where you can debate them directly on their pieces:


  8. Happy Thanksgiving everyone.


    • jnc:

      Good read:

      Yes, thanks for linking to that. It is a useful reminder of just how dishonest and corrupt the NYT and WaPo have been regarding the whole Russia Collusion Hoax.


      • It’s particularly illuminating when the piece quotes the actual transcripts of the Flynn/Kislyak calls and then shows how they were described in the specific news articles.


  9. I’m in the middle of listening to Woke Inc. Pretty eye-opening


  10. FYI been watching Peter Jackson’s “documentary” Get Back about the Beatles. Pretty interesting, if you get a chance to watch it. I put documentary in quotes because it isn’t a traditional documentary at all. It is basically just raw footage of the Beatles practicing, recording, and interacting with each other during the weeks leading up to the famous rooftop concert in London. No voice over or story line. Just an occasional subtitle to explain what is going on.


    • It is, especially watching how the songs evolved from their inception to the final form.

      I appreciate the historical context added for various conversation pieces, like showing the BBC schedule and snippets from the program they were talking about along with the newspaper headlines they were referencing.

      From a technical restoration standpoint, it’s amazing video and sound quality.


      & this captures the essence I think:


      • jnc:

        It is, especially watching how the songs evolved from their inception to the final form.

        I was fascinated by the clip of McCartney working out the music to Get Back. It wasn’t noted in the documentary, but I find it amazing that none of the Beatles could actually read or write music, something that McCartney revealed in an interview not too long ago, and something that I saw Harrison admit offhandedly in an old Dick Cavett interview from the ’70s. Incredible.


        • It actually kinda was, when the sheet music guy came in the first episode and showed them the book of their songs sheet music and they asked if anyone bought it aside from people who play piano.

          The guy also noted that sometimes errors crept in from the person transcribing the songs.


        • Hah…I missed that.


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