Sunday, March 17, 2024

COVID lessons learned


Our COVID national nightmare began just four years ago, so now is a fitting moment to step back and review what happened and what we have learned as a result. The Committee to Unleash Prosperity, headed up by my good friend Steve Moore, recently published a study which compiles all that we have learned about COVID and the egregious attempts of many to deal with it. This needs to be widely distributed. I've summarized the 10 major lessons learned here:

  • Leaders Should Calm Public Fears, Not Stoke Them
  • Lockdowns Do Not Work to Substantially Reduce Deaths or Stop Viral Circulation
  • Lockdowns and Social Isolation Had Negative Consequences that Far Outweighed Benefits
  • Government Should Not Pay People More Not to Work
  • Shutting Down Schools Was a Major Policy Mistake With Tragic Effects on Children, Especially the Poor
  • Masks Were of Little or No Value and Possibly Harmful
  • Government Should Not Suppress Dissent or Police the Boundaries of Science
  • The Real Hospital Story Was Underutilization
  • Protect the Most Vulnerable
  • Warp Speed: Deregulate But Don’t Mandate

The 48-page study, authored by Scott Atlas, Steve Hanke, Phil Kerpen and Casey Mulligan, is chock-full of charts and footnotes. We cannot allow government to repeat these grievous errors ever again. Print this out and give it to your children.

If you haven't already, do subscribe to Steve's excellent newsletter Hotline (it's free). It comes out every weekday and is always full of interesting information that you might not see elsewhere.

Thursday, March 14, 2024

Inflation is NOT running hot


Don't jump to conclusions based on one month's number.

The Final Demand version of the Producer Price Index rose 0.6% in February, and that was twice the amount the market expected to see. A Bloomberg headline this morning said "Bond Yields Jump as Hot Inflation Curbs Fed Wagers." Worse still, the full version of the PPI rose 1.4% in February. OMG! 

Well, the reality is VERY different, as these two charts show.

Chart #1

Chart #1 shows the level of the Producer Price Index. As the line in the upper right-hand corner suggests, prices have been unchanged since June '22. Monthly datapoints jump up and down quite a bit, but on balance, prices are going nowhere. In fact, the PPI is down 0.2% since June '22. Want more? Prices for unprocessed goods for intermediate demand (another subset of the PPI) have plunged by 31% since June '22. 

Chart #2

Chart #2 shows the 6-mo. annualized and year over year change in the Final Demand version of the PPI—the one that has given the market the willies this morning. What do we see? The year over year change in this measure of inflation today is 1.55%, and it has been less than 2% since April '23. 

Inflation at the producer level has not been a concern for many months. It's effectively dead.

If the Fed gurus have any sense at all, they will realize that there was nothing in today's news that would argue against a cut in short-term rates. 

Tuesday, March 12, 2024

Ex-shelter inflation has been less than 2% for 8 months


"Hot CPI" read the headlines today, referring to the 0.4% rise in the February CPI and the 3.2% year over year change in the CPI. My take: inflation is running hot only if you think it makes sense to look at the year over year rise in nationwide housing prices 18 months ago. If you omit that one item (which comprises about one-third of the CPI), then you find that the year over year change in the CPI has been less than 2% for the past 8 months.

Chart #1

Chart #1 illustrates how the BLS calculates the shelter component of the CPI. It's almost entirely driven by the year over year change in the Case Shiller National Home Price Index 18 months ago. To explain: the blue line is the year over year change in home prices. The red line is the year over year change in Owner's Equivalent Rent, which dominates the shelter component of the CPI, shifted 18 months to the left. That the red and blue lines track almost perfectly for the past several years is virtual proof that the BLS is using 18-month-old housing price changes to calculate one-third of the value of today's Consumer Price Index. It's crazy, and it's a well-known flaw in the calculation of the CPI.

Chart #2

Chart #2 compares the year over year change in the CPI and the CPI less shelter. There is a huge gap between the two which has persisted for over 8 months. That gap will almost certainly disappear over the next 6-7 months, since that will mark the zero % change in the blue line in Chart #1. 

Given that the stock market today shrugged off the disappointing CPI news, we can reasonably conclude that the world is aware of this problem. The world knows that inflation is under control and that sooner or later the Fed will begin reducing short-term interest rates.

Will someone please mention this to the members of the MSM?