November 15, 2019
Jobless claims jumped from 211k to 225k. One higher than expected weekly number certainly does not make a trend, but this data point is worth paying attention to in the weeks ahead. Unlike CPI, PPI was stronger than expectations but like CPI the year over year rate excluding food and energy was lower than the prior month. Core (ex food/energy) CPI and PPI is relied upon heavily by the Fed for inflation guidance.
On Thursday’s Real Investment Show podcast, Lance Roberts and Michael Lebowitz talked about inflation and the ways in which the government consistently modifies inflation calculations to help keep inflation readings lower than the real rise in prices. In particular Shadow Stats was mentioned. Shadow Stats simply recalculates CPI using the same exact price data in the BLS reports, but uses the formulas that were used in 1980. As shown in Today’s Chart of the Day, CPI using Shadow Stats logic is now running at about 10% a year versus the current CPI run rate of 1.5-2%. While inflation is impossible to calculate to a single number for a large population with diverse needs and demographics, we believe an approximation of inflation lies between the two calculations shown.
Beyond the current gap between the two lines, what we find to be very interesting is the trends of the two calculations. CPI (red) has been flat to declining, while the Shadow Stats figure (blue) has been flat to inclining. We tend to agree with Shadow Stats that prices in aggregate are rising, which helps explain why so many Americans find themselves in debt and living pay check to pay check.
Jim Bianco, of Bianco Research, recently presented the graph below. As shown, Fed Funds have been trading about 5-10bps below the mid point of the Fed Funds target range. Prior to the recent funding problems and liquidity operations by the Fed, Fed Funds traded 5-10 above the mid point. Jim’s takeaway is that maybe the Fed has supplied too many reserves to the market. If he is correct, Fed Funds should continue to trade at an increasingly greater distance below the midpoint. Might there be another purpose for QE? CLICK TO ENLARGE