by My feeling is that although it is too early to declare victory over high inflation rates, I think we are closing in on closer to “normal” dynamics — by the standards of the post-1990 era. I believe that there are still areas of stronger pricing power, but some of the excesses have been unwound, so that we end up with more mediocre inflation prints. At least we would if the housing component of CPI — constructed to be a very slow-moving series — settles down. The market rent series that I have seen (but I do not have access to) suggest that it will settle down, but that will be a mid-2023 story.The chart above shows the 6-month annualised rate-of-change of the “commodities” (goods) component of the U.S. CPI. It excludes housing, and is currently near typical levels seen in past cycles.
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My feeling is that although it is too early to declare victory over high inflation rates, I think we are closing in on closer to “normal” dynamics — by the standards of the post-1990 era. I believe that there are still areas of stronger pricing power, but some of the excesses have been unwound, so that we end up with more mediocre inflation prints. At least we would if the housing component of CPI — constructed to be a very slow-moving series — settles down. The market rent series that I have seen (but I do not have access to) suggest that it will settle down, but that will be a mid-2023 story.The chart above shows the 6-month annualised rate-of-change of the “commodities” (goods) component of the U.S. CPI. It excludes housing, and is currently near typical levels seen in past cycles. Nothing that looks like a persistent inflation problem, but we cannot completely rule out more supply chain disruptions.
My guess is that we will back to more typical dynamics, where inflation follows aggregate demand with a lag, and business cycle sentiment indicators will be the ones to watch.…
Brian Romanchuk