- by New Deal democrat
It's pretty clear that inflation isn't going to hit the Fed's ceil... er, target, of 2% for awhile at least.
All throughout this 8 year expansion, consumer inflation has been driven by two things:
1. the price of gas
2. owner's equivalent rent.
I show all three YoY in the graph below (gas is divided by 12 for scale):
First of all, you can see that most of the *variation* in headline CPI aligns very well with changes in the price of gas.
Secondly, you can see that, even when gas prices have been declining YoY, headline CPI has been running roughly in the 0% to 2% range. That's because owner's equivalent rent, which is almost 40% of CPI, has been running from 2% to 3.5% YoY for most of the expansion.
I don't see either dynamic changing in the near future, at least until enough entry level housing is built to satisfy demand.
