Even Kind Price Numbers Won't Make the Fed Ease Up

The tightening track remains slow and steady.
Author:
Publish date:

Champagne Wishes

MYSTERY, Alaska -- Is it fair to stretch the fish as you measure it?

We get two big price numbers on Thursday.

(a) The first-quarter

employment cost index

is one of them.

This thing's

printed 1.1% for two of the past three quarters (compare to an average 0.8% since 1994). That's driven its year-on-year increase to 3.4% from 3.0%, and the math works such that another one-handle quarterly figure would send it to four.

The average hourly earnings series from the employment

report grew more during the January-March period (1.2%) than it did during any quarter since 1996. This typically serves as a good guide as to what we can expect of the wages and salaries portion of the ECI: The two tend to post (on average) similar increases.

Interestingly, though, the first-quarter earnings number has come in bigger than the ECI wages and salaries number in each of the last three years.

The CPI for

medical care grew more during the January-March period (1.2%) than it did during any quarter since 1994. This typically serves as a good guide as to what we can expect of the benefit costs portion of the employment cost index: It tends to post increases that are three-tenths bigger (on average) than its ECI counterpart.

(b) The price indices to be delivered with the

gross domestic product

figures are the others.

The core (excluding food and energy) chain-type price index for personal consumption expenditure

rose 1.4% last year; it accelerated to a 1.5% year-on-year pace during the fourth quarter from 1.3% during the third. It probably stepped up further during the first three months of this year. Note that central bankers recently talked up this PCE index and played down the CPI (see the Monetary Policy

section of the

testimony delivered in February).

The core chain-type price index for gross domestic purchases rose 1.3% last year; it accelerated to a 1.5% year-on-year pace during the fourth quarter from 1.3% during the third. It too probably stepped up further during the first three months of this year. This index is key because it captures the prices of everything Americans buy -- including imports.

Epilogue

The analysis that has the Fed out of our faces on kind price prints misses the mark.

The fact that some key price measures troughed back in 1998 means that policymakers aren't going to abandon the tightening thing anytime soon. They feel too strongly that things like that are terribly tough to smoosh back into their bottles once they're out (without undue pain, anyway).

Likewise, the fact that nobody knows quite the hell what's going on means they're likely to limit the hiking process to a slow and steady one (for the most part).

The fish-stretchers ain't never been good swimmers. All you gotta do to drown 'em is wade out past the numbers.

Close your eyes.

Float.