Fed Vice-Chair Brainard said that “nonhousing services are running at about 4.4 percent annualized inflation on a 3-month basis.” Matt Klein suggested that she’s using PCE numbers. I can only find Services PCE numbers until November because of the known one month lag in PCE. But the signal in the more recent CPI numbers cannot be summarily thrown out. That signal says nonhousing services inflation has collapsed, with strategic implications for monetary policy.
We pull seasonally-adjusted Services PCE index, Services less rent CPI index, and rent index from FRED. We obtain CPI price series from BLS and construct the lowest volatility quintile series — our signal for the inflation expectations of the slowest moving price setters. We also report the Global Supply Chain Pressure Index provided by the NY Fed.
We can confirm that nonhousing services inflation is running at 1.2%, not 4.4% per annum, as measured by the annualized 3-month rolling % change in the seasonally-adjusted consumer price inflation chain-type price index for services ex housing. Please note that the n/a for Dec PCE services is not a mistake. That’s the announcement lag.
measure_names = {
"Services (PCE)":"DSERRG3M086SBEA",
"Services less rent (CPI)":"CUSR0000SASL2RS",
"Rent of shelter (CPI)":"CUSR0000SAS2RS",
}
We have shown that global slack controls AE inflation rates. We are happy to report that this signal has collapsed. The global shock is over for now. This is not in the hands of the Fed. But the Fed should be, and indeed is, paying attention to the NY Fed’s measure of global slack.
Lael, even if the PCE number is 4.4%, the discrepancy between 4.4% and 1.2% is too large to be attributed to the distance between PCE and CPI weights. We’re talking roughly about half the economy here. This has strategic implications for monetary policy. Simply put, it is time for a possibly terminal pause in the hiking cycle if the latter number is closer to the truth.
Beating inflation is not the point. The point is to ensure the continued supremacy of capital over labor.
See Chrystia Freeland's recent speech ("the middle class must take a pay cut") if you need further evidence.