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Jason Furman

@jasonfurman

22 Sep

The FOMC median inflation projections are likely, once again, underestimating future inflation. But less obviously true than their previous projections.

They expect PCE / core PCE inflation to be 4.2% / 3.7% this year. To hit that would require a large inflation slowdown.

In the first 8 months of the year (including a reasonable forecast for Aug based on the CPI & PPI), inflation rose at around a 5% annual rate. To hit their numbers for the full year will require it to slow to about a 1.5% annual rate. In other words, 0.12% monthly prints.

That could happen if either a lot of transitory level increases reverse themselves (e.g., used car prices will likely fall more) or if there are transitory falls due to spreading virus (e.g., further falls in travel/tourism prices).

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Jason Furman

@jasonfurman

16 Sep

The House bill doubles cigarette taxes from $1/pack to $2/pack and raises other tobacco taxes. The direct effect of this is regressive but the indirect effects are much larger, more important and very progressive--conferring larger health gains for lower-income households. A 🧵.

I addressed this issue in a speech I gave when I was at CEA arguing that the tobacco taxes disproportionately benefit lower-income households.

To fully analyze it we need to understand four components:

obamawhitehouse.archives.gov/sites/default/…

1. The direct effect. This is regressive because lower-income people smoke more and thus end up paying more in taxes.

(Technical aside: The incidence of the tax is likely partly but not fully on consumers because contrary to conventional wisdom demand is not inelastic.)

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Jason Furman

@jasonfurman

16 Sep

Retail sales out this morning (I'm a bit late to it). Surprisingly strong:

--Nominal sales up 0.7% (that's A LOT for a single month, especially when they were already well above trend).

--Spending at restaurants and bars was flat in August and 1.4% higher than June.

Stepping back for the bigger picture, nominal retail sales are 14% above trend. The majority of that is prices but the quantity (real retail sales) is still 6% above trend.

Reminder: these data are ~half of consumption & are miss most services, which are still below trend.

The huge spending bump on cars and parts is now over and instead we're just left with a large spending bump. But that spending bump is all to cover the higher prices, adjusted for inflation they are lower than they were pre-pandemic. Is the opposite of pent-up demand.

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Jason Furman

@jasonfurman

14 Sep

August CPI is out, most benign headline reading since January... but in a reversal from previous months the underlying trends were somewhat worse than the headline.

The underlying trend many have focused on was about the same as previous months.

In August some of the temporary factors driving up inflation went into reverse either because they had overshot the mark (used car prices -1.5% in Aug & car and truck rental -8.5%) or because the delta resurgence temporarily dampened prices (airlines -9.1% & hotels -3.3%).

Inflation from February to July was extraordinarily high: core CPI rose at an 8.0% annual rate. We always knew that inflation would not continue at an 8.0% annual rate. The question is will it slow to something like 2% (the Fed's view) or something meaningfully higher (my view).

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Jason Furman

@jasonfurman

27 Aug

American consumers seemed largely unphased by the Delta Variant in July. We'll see if that holds up in August--and could debate whether it is a good or bad thing.

Large increases in spending on restaurants, hotels, movie theaters, and other pandemic-related categories.

The economy continued to rebalance from goods spending (which remains high relative to trend) & towards services spending (which remains low). Some notable services (real):

Food services: +0.8%
Hotels and motels: +8.5%
Transportation: +3.3%
Movie theaters: +13.4%

Notably, people in July at out slightly *more* than would have been expected absent the pandemic. Maybe they were making up for lost time (pent up demand in services???), maybe it's more takeout, but also consistent with higher incomes.

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Jason Furman

@jasonfurman

27 Aug

Your updated inflation scorecard. For the median inflation expectations by the FOMC to be correct we would need to see prices *fall* between July and December. We've essentially had all of the inflation they predicted for the year in just seven months.

(Technical note: The FOMC, like the Fed staff & many other forecasters, projects Q4/Q4. On a monthly basis we've had slightly less inflation than they forecast for the yr but when you look at how the quarterly numbers shake out would need slightly negative to hit their forecast.)

Inflation has well more than made up for its misses during the pandemic. In fact, it has made up for all of its misses since 2015.

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