Even though US CPI today was broadly in line with expectations (small miss on core partly due to autos correcting more than anticipated, small beat on headline annual prices), DB's Jim Reid notes that this has still been a remarkable period for inflation beats and today's data doesn't really reverse much on this front; instead its just that expectations have now adjusted much higher.
According to the credit strategist, in the 4 months of prints back to the April reading the cumulative monthly beat has been 1.1% for both headline and core relative to consensus expectations on Bloomberg. And, as Reid's "chart of the day" shows, this dwarfs any rolling 4-month period in the history of Bloomberg expectations (back to 1997). Indeed, for core it towers over anything seen before.
So, as the Deutsche strategist summarizes, "the post pandemic recovery continues to throw inflation models out the window for the time being." This also has to do with erroneous seasonal adjustment models, a point which UBS chief economist Paul Donovan made last week when he said that "people are not spending in a seasonal pattern, so firms are not hiring in a seasonal pattern, so data is adjusting for a seasonality that does not exist." This is a problem for a jobs report showed almost 1 million jobs added on a seasonally adjusted basis and... 133K jobs lost unadjusted.
Understandably, Reid then asks if models will become better calibrated over the coming year as genuine transitory items roll off or will models remain out of kilter with the past; and notes that "this is big debate within DB research with differing opinions." And while Reid himself sides more on the sustained inflation front, he admits that it’s not a view shared by many of our economists. To be sure, "there is enough in today's report to keep the transitory crowd happy. So interesting times ahead."