US inflation is not that soft – ANZ

In an absolute sense, US inflation is not that soft as core CPI is running at 1.7% y/y, which is only a little below 2%, explains the analysis team at ANZ.

Key Quotes

“But when you consider the economy is supposedly at full employment, it is indeed lower than you’d expect, and certainly not showing signs of accelerating like you’d expect as well. Some temporary factors look to be playing a role (like cell-phone service charges, which are down 13% y/y). However, there are clear signs of broader deflationary pressures too ranging from electronics, to education, to medical services. And this is where it starts to get complicated for the Fed (and central banks in general to be fair as this is a global phenomenon) as it is becoming clear that secular forces (like technology) are playing a bigger role in the inflation (or lack thereof) generating process.”

“We’re not convinced central banks should (or even can) attempt to stand in the way of these forces, which starts to then raise some pretty interesting questions about the validity of current inflation targets, or inflation-targeting in general (at least in its current form).”