Tuesday, February 20, 2018

WSJ:Housing Prices Skew Inflation Figures. David Rosenberg:Not So

April 16, 2010 by  
Filed under Inflation or Deflation, Move

Kelly Evans reported in the The Wall Street Journal (April 14, 2010) that the The Labor Department was expected to report that U.S. consumer prices rose 0.1% in March and are up 2.4% from a year ago. What little inflation there is (at least according to the Labor Department) is being driven by fuel prices.

The Journal article quoted Ethan Harris, Chief Economist for Bank of America, who does not expect prices to bottom until 2012. “We’re looking at an economy that’s dangerously close to deflation”, Harris said.

Evans sees it a little differently than most of the Fed’s policy makers who seem to be much more concerned with deflation than with inflation. He cites housing costs which account for 32% of the CPI, and according to Evans, the 32% places an exaggerated emphasis on rental costs rather home ownership costs.
David Rosenberg Says Rent Matters
David Rosenberg, Chief Economist & Strategist for Gluskin Sheff sides with the Fed Policy Makers and Harris. OnĀ  15, 2010 in Breakfast with Dave he wrote:

Rent matters a lot in the consumption basket and the fact that it is deflating is a sign of stress in both the labor market in terms
of still punishingly high unemployment rates and the effects on income, as well as in the housing market (i.e., near record high apartment vacancy rate). Not only that, but core CPI excluding the rent influence was at +0.1% MoM and has still hooked lower to +1.7% on a YoY basis and the trend is still on a firm downtrend.

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