Concerns over inflation have faded into the background, and to be sure, core inflation is still only modest. But don’t tune out completely. A significant amount of liquidity has been pumped into financial markets in recent years — it simply hasn’t been fully deployed given banks’ resistance to lend. Should lending velocity eventually accelerate, inflation could become a significant risk to investors and the aggregate economy. Here’s The Inflation Trader‘s take on Seeking Alpha:
It was an interesting day because it was CPI day. Headline inflation was as-expected at +0.304%, but core inflation came in at only +0.054%, barely rounding up to +0.1%. That really wasn’t too much of a surprise; I commented yesterday that core inflation had been running hotter than my models suggested it should be. What was a little surprising was that housing inflation wasn’t responsible for that slowdown. I show the breakdown by major groups below. From last month, the following major subgroups showed acceleration in the year/year rate: Food & Beverages, Housing, Transportation, Recreation, Education/Communication, and Other. Those groups total about 90% of the index; the other 10% (Apparel and Medical Care) decelerated. Now, this is on a year/year basis, and it doesn’t tell you where the weakness was this month, but what it does tell you is that overall inflation is still rising. The year/year figure for headline was +3.868%, as you can see from that chart, and core was +1.975%. Remarkably, coming off a bubble bursting Housing inflation has almost caught up with the rest of core. I think this is largely a blip resulting from the hang up in processing foreclosures, and I would expect Housing to fall further behind core over the next six to twelve months.