While Jay Powell and crew are the center of attention this week, for obvious reasons, what was most striking were the comments from a former senior Fed official: Jim Bullard, former President of the St. Louis Fed . He recently said at a National Association of Business Economists conference in Washington just a few weeks back,That is a direct quote — and he added this little ditty:
Meanwhile, if we can strip out the shelter components, which we know have nothing to do with the prices anybody is paying for anything, inflation already is running at +1.8% YoY, compared with +5.0% a year ago; and the core ex-shelter is at +2.2% from +3.7%. For all the hand-wringing over the PPI last week, the headline is running at the oh-so-scary year-over-year rate of +1.6% from +4.7% this time last year, and the core is right at +2.0% on the nose and less than half the +4.
The downward revisions we have been seeing in payrolls, production, and retail sales have been huge! January’s industrial production was revised to -0.5% from -0.1%, retail sales for January were taken down to -1.1% from -0.
When you look at what the aggregate supply curve is doing , it is expanding at a +3.3% annual rate, so even if you buy into the Atlanta Fed number, aggregate demand is running well below aggregate supply. So, yes indeed, we hit a bump in the CPI and PPI data these past two months, but there is not a construct in theory or practice when supply growth is front-running demand growth by this much that is inflationary.