Already a subscriber?The most important idea this column has been able to tender for 2024 has been the crucial role that services inflation will play in the pricing of all assets.
The Fed’s preferred core PCE measure of inflation printed at 0.3 per cent in February with the prior month’s estimate for January being disappointingly revised up from 0.4 per cent to a stonking 0.5 per cent.This means that the trend pace in monthly annualised inflation in the US has leapt from a trough around 2 per cent late last year, which precipitated the Fed’s silly pivot, to circa 3.5 per cent.
Coolabah’s chief macro strategist, Kieran Davies, says: “The pick-up in US inflation has been broadly based, in that the estimated trend of the ‘trimmed mean’ PCE deflator, which is a wider measure than the core PCE, shows annualised monthly growth reaccelerating from 2.5 per cent last year to 3.75 per cent.”The main culprit has been a resurgence in services inflation care of elevated labour costs.
The Albanese government argues that the Fair Work Commission should not allow inflation-adjusted wages to fall, which means it is calling for an increase in minimum and award wages of about 4 per cent while unions are advocating 5 per cent. A 4 per cent rise would be incompatible with the RBA hitting its 2.5 per cent inflation target unless we get a dramatic improvement in productivity.
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