Or How I Learned To Love September CPI

Our monetarist model of core CPI based on M2 money supply growth was confounded by a new year-on-year high in September’s report this morning. The culprit is owners’ equivalent rate, the removal of which sets the peak in February. Removal makes no difference to headline CPI, which peaked in June. OER is the largest and laggiest component, and while it is an important reality to acknowledge, removing it gives analytic clarity on underlying inflation processes. So we continue to believe firmly that inflation has peaked. But the Fed is making it increasingly clear that it doesn’t care either way, and will continue to tighten regardless of incoming data. Hiking regimes continue until “something breaks.” Something is breaking in the UK, with the crisis in its pension sector. It is no coincidence that the Bank of England was the first central bank to lift off from pandemic-era low rates, three months before the Fed did.