... or what recently caught my attention in several points:
1) Of course inflation is the most important data point.. my takeaways:
(i) the last (inflation) mile may be the hardest, but inflation, at least in the first half of the year, should not upend the market’s “soft landing” narrative,
(ii) especially since we will have strong base effects on core inflation (from May 2024) and food (from February), and
(iii) you can also count on declines in used car prices (probably from January 2024) and a further slow decline in Shelter inflation.
2) But is it possible to reduce “super core inflation” (core services ex. housing), which is the most important for the Fed, without a deterioration in the labor market? In this case… “the labor market holds the key”…
J. Powell's speech on November 30, 2022: “To assess what it will take to get inflation down, it is useful to break core inflation into three component categories: core goods inflation, housing services inflation, and inflation in core services other than housing . (…) we finally come to core services other than housing. This spending category covers a wide range of services from health care and education to haircuts and hospitality. This is the largest of our three categories, constituting more than half of the core PCE index. Thus, this may be the most important category for understanding the future evolution of core inflation. Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category.”
But the latest/yesterday's Initial claims do not indicate a deterioration in the labor market: initial claim only 202k close to the cycle bottom. Contined claims are also rolling over… now at 1.834m. See Figure 1.
3) Where there might be a risk of some sort of inflation comeback in the second half of 2024?... try … fiscal spending in an election year. Yesterday we got the latest data on the US government deficit for December 2023. So far.. no panic here. Total outlays for December were $ 558.7 bln (+3.5% YoY). Receipts $ 429.3 bln (+5.6% YoY). Deficit in December $ 129.4 bln (+52.2% YoY, but „only” +$ 44.4 bln). Figure 2.
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