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December 23, 2005
More Good Inflation News
The scoop, from Reuters:
U.S. Treasury debt prices rose sharply on Thursday after a lower-than-expected November reading on the Federal Reserve's favorite inflation indicator revived hopes for a fast end to the tightening cycle...
In its monthly personal spending report, the Commerce Department said the core personal consumption expenditures (PCE) deflator rose just 0.1 percent in November, below forecasts for an advance of 0.2 percent.
For the year through November, the core PCE rose by 1.8 percent, inside the Fed's perceived "comfort zone," to suggest that inflation pressures, for now, were contained.
That would be referring to core inflation measured by the PCE excluding food and energy components, but the basic story is confirmed by the Dallas Fed's alternative (and, in my opinion, superior) trimmed-mean measure of core inflation:
One-month PCE inflation, annual rate
June July Aug. Sept. Oct. Nov.
PCE 0.1 3.6 5.2 12.0 1.4 -5.0
and energy 0.6 0.7 1.8 2.6 1.8 1.6
mean PCE 1.4 1.8 2.8 3.0 2.0 1.7
12-month PCE inflation
June July Aug. Sept. Oct. Nov.
PCE 2.2 2.6 2.9 3.8 3.4 2.7
and energy 1.9 1.9 2.0 2.0 1.9 1.8
mean PCE 2.1 2.1 2.2 2.3 2.2 2.2
Using my preferred measure of PCE core, the conclusion really is inescapable -- the underlying rate of inflation is simply not budging.
Of course, the Reuters article also includes this observation:
Regardless of whether outright yield have been rising or falling, the Treasury yield curve has been flattening all week.
The two-year/10-year spread fell toward three basis points, a level some dealers see as the last line of defense against a move to parity, or zero basis points.
Based on our last report of market expectations, the prospect of spread turning negative looks like a real possibility. On the other hand, those expectations are pretty fluid at the moment:
In futures, chances that the Fed will raise interest rates in March as well as January slipped to 62 percent from as high as 70 percent on Wednesday.
On the spending side of the Commerce department report, The Skeptical Spectator characterizes the
gains as "good." Dean Baker apparently disagrees (although I'm not sure why). In either event, General Glut still frets that the personal saving rate is negative.
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Trimming to the Core of the Matter
New Economist finds research on which measure of core inflation is best: New Economist, Measuring core inflation in US and Canada: How best can central banks measure core inflation? Two new central bank working papers shed some light. New York [Read More]
Tracked on Dec 30, 2005 4:25:16 AM
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