Morning Must-Read: Tim Duy: Inflation Hysteria

Tim Duy: Inflation Hysteria: “It appears that a case of inflation hysteria…

…is gripping Wall Street…. Goodness, you would think it is 1975. It is probably instructive to stop and see what all the fuss is about. Although core-CPI is about to brush up on 2%, core-PCE remains well below, and it is the latter that is most important…. Inflation is not a sustained phenomenon in the absence of participation from wage dynamics. If inflation accelerates while wage growth remains stagnant, demand will soften and so too will any incipient price pressures. Hence why Yellen sees the potential for downside risk for consumer spending in the absence of stronger wage growth. Moreover, as she notes, wage growth itself is not inflationary… inflation… [is] correlated with unit labor costs…