For the next several months, consumer-price index data won’t reflect the drastic change in consumption patterns, and won’t guide policy makers in the usual way
By Mike Bird
Almost 0.7% of the consumer-price index is made up of haircuts and similar personal care.
Photo: Steven Senne/Associated Press .
On Friday, investors will get their first look at U.S. inflation data since strict measures to restrict the spread of coronavirus began.
But over the coming months, headline consumer price inflation will be next to useless for understanding either the economy or how policy makers might act to support it. Investors should get used to tuning it out.
A consumer-price index is made up of thousands of minor categories, derived from survey-based estimates of how people spend their money.
For some of these items, demand has collapsed thanks to stay-at-home orders.
For others, supply is now effectively illegal since it would require gatherings that would violate various lockdown strictures.
The supposed prices of many items will be based on extremely depressed sales.
For example, almost 4% of the index is made up of heavily disrupted recreational services.
Almost 0.7% is made up of haircuts and similar personal care. Transportation services account for 5.4% of the total, and vehicle purchases—new and used—more than 6%.
Even for particularly large components of the index, like rent and imputed rent—what a property would be worth on the rental market—assessments will now be extremely difficult.
Some commercial rents are being forgiven entirely, and the residential market may follow.
Many foreclosures and evictions aren’t going ahead. Residential rents make up nearly a third of the index.
Economists and investors would like inflation to mean more than just the average change in thousands of different prices moving wildly up or down for idiosyncratic reasons.
Unfortunately for months to come, headline inflation figures will tell us less about the general condition of the macroeconomy than they usually do, except to say that it is in an extremely unusual state.
For that reason, the inflation data will do very little to guide the hand of the Federal Reserve: Jerome Powell is unlikely to raise interest rates because prices are being driven higher by the pandemic surge.
There is good reason to believe that after the spread of the coronavirus is slowed and the strictest lockdown measures are lifted, the overall effect will be deflationary. Disrupted supply can roar back quickly but lost income and the shock to consumer confidence could weigh on demand much longer.
For now, months of unpredictable and wild inflation data—based on our consumption in far more normal times—lie ahead. For the most part, investors should treat them as an oddity rather than a cause for worry or celebration.
0 comments:
Publicar un comentario