The core CPI, excluding shelter has been benign over the last three months (see chart on page 4). The annualised rate for these three months is just 1.81%. The durables CPI soared by an annualised 48.78% during April, May and June. It has since slowed to 3.31%.
The abrupt turnaround serves a reminder not to read too much into short-term swings in prices. The Fed needs to pay much more attention to the data on costs and profit margins.
Higher profit margins provide a cushion against costs and make it far less likely that any sudden spike (in costs) will lead to a sustainable rise in inflation. Profit margins (in $ terms and per unit of domestic, non-financial corporate production) rose to record highs in Q2.
This perhaps explains why the 10-year Treasury has stabilised in recent days. Bond investors are unsure: despite all the talk of port disruptions, wage ‘inflation’ and rising energy costs from a ‘botched’ green energy transition, business dynamics are very different from the late-1960s/early-1970s, when inflation last took root in the US (and other industrialised economies). The opportunities for companies to invest in IT, to defray rising costs through automation, should not be underestimated.
Summary
- Atlanta Fed median wage tracker jumps again
- But rising wage ‘pressures’ not matched by CPIs
- Durable prices ease again despite ‘shortages’
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