The "Transitory" Debate Is Over: Persistent Inflation Just Hit The Highest On Record

Tyler Durden's Photo
by Tyler Durden
Friday, Nov 12, 2021 - 07:01 PM

Step aside Dennis Gartman: there is a new permanently - so to speak - wrong indicator in town: the so-called "team transitory" bros. These macrotourists who jump from echo chamber to echo chamber in hopes of boosting their social media "cred", while (incapable of) doing zero economic analysis, have been dead wrong for the past year on the threat posed by galloping inflation, and echoing the just as wrong career economists at the Fed, have claimed that inflation is not persistent, but is merely transitory and will normalize any second now. Well, as this week's CPI print demonstrate all too clearly, the "transitory" narrative died.

It's get better, because one month after the signs were there for anyone who bothered to see, when BofA reported that its permanent inflation indicator had hit a record 96 out of 100 (with the transitory meter stuck at 100 since June)...

... yesterday the bank shut down any still ongoing debate whether galloping inflation is just transitory or permanent when it published its latest BofA US transitory and persistent inflation meters. It's self explanatory.

Here is BofA's Alex Lim explaining what happened:

Core CPI surged 0.6% mom in October, coming in well above expectations. This boosted the % yoy rate to 4.6%, the highest since 1991, from 4.0% previously.

There were signs of both persistent and transitory inflation forces as we discussed two days ago: for the former, owners’ equivalent rent (OER) and rent of primary residence both climbed 0.4% mom, providing additional confirmation of a reset to a higher trend. Sticky medical care services also grew 0.5% mom, albeit largely driven by strength in health insurance. For the latter, used car strength returned and new cars stayed hot.

Alternative measures of inflation provided additional confirmation of strong persistent inflation. Median CPI climbed to 3.1% yoy from 2.8% and trimmed-mean CPI jumped to 4.1% yoy from 3.5%. The Atlanta Fed’s sticky CPI measures and the NY Fed’s Underlying Inflation Gauges (UIG) also picked up notably.

And, as shown in the chart above, the BofA US persistent inflation meter (PIM) reached its max reading of 100 in reflection of these price increases, "signaling historically high persistent inflation pressures." Meanwhile, the BofA US transitory inflation meter maintained the max reading of 100 for a seventh consecutive month. As the scatterplot below shows, we literally need a bigger chart!

Given ongoing supply side challenges with port congestion, bottlenecks and delays, production disruptions, and the slow return of the labor supply, BofA expects continued elevated inflation pressures over coming months. This will likely keep the BofA US TIM and PIM near max levels in the near term. Alternatively, BofA may have to revise its meter so it can show even the higher prints which will soon be hitting the tape.