Mongkol Onnuan
The case for weaker inflation going forward is quite strong, said Neil Dutta, head of US economic research at Renaissance Macro.
During a Bloomberg interview, Dutta said that it seems like the Federal Reserve was able to successfully trim excess labor demand without driving up unemployment too much.
The unemployment rate went up to 3.9% in April from 3.8% in March, while job openings have come down to 8.5M in March, down by 1.1 million over the year, according to the U.S. Bureau of Labor Statistics.
In addition, the Employment Cost Index rose 1.2% in the first quarter, “but the underlying drivers of that data are the average hourly earnings for non-supervisory workers, and we saw in April that it is cooling,” he said.
Over the last three months, average hourly earnings growth for non-supervisory workers is up 3% at an annual rate. That is growth that is “broadly consistent with the Fed’s underlying inflation objectives, which is why unit labor costs have been cooling,” he added.
So, where is inflation coming from? Dutta said that it is not due to expectations perking back up, or because labor markets are reheating; neither because the dollar is weakening and pushing up the prices for imported consumer goods (the dollar has been generally stronger).
“So, you can point to things like, financial services inflation [picking up], and health care services [picking up, as well as] all motor vehicle insurance,” he said — “these idiosyncratic factors.”
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