August CPI rose .3%, in line with expectations but the core rate was flat vs the forecast of up .1%. CPI is up 1.1% y/o/y and .9% ex f&f. Keeping a lid on the core rate continues to be Owners Equivalent Rent, which makes up 25% of headline CPI and about 40% of the core. Aug OER was flat after the two prior months which saw .1% gains. The y/o/y fall in OER is .3%. Landlords are dealing with a soft economy and unsold homes being rented on one hand and a secular downward trend in the homeownership rate that will increase the amount of renters on the other. After 3 strong gains in apparel prices, they fell .1%. Commodity prices, which make up 40% of CPI, were up .5%, mostly led by energy and food. Bottom line, a flat core CPI gives the Fed the belief that they have a license to continue their extraordinary policies but here’s perspective, the CPI is up 29% over the past 10 yrs and is down .6% from its record high. And they call that deflation.

Category: MacroNotes

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One Response to “CPI down .6% from record high and its called deflation?”

  1. demand side says:

    Can we please notice the drop in housing prices and other asset prices and agree this is asset deflation? Are you arguing with that?

    Asset price deflation is the damaging debt deflation. These consumer prices are flat, yes, and they will remain flat as long as there is no investment or income growth.

    It is absolutely inane to be looking at core inflation, headline inflation and the rest. The only downsides to lower prices is when it discourages investment and increases debt burdens. This is asset price deflation. Do we have any economists in the house?