WEBVTT - US Core Inflation Tops Forecasts 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen, and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.320 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:47.000 --> 0:00:47.680 A good amount of. 0:00:47.680 --> 0:00:49.879 Time here commercial free with William Lee. He's at the 0:00:49.880 --> 0:00:54.000 Milkin Institute, of course, definitive at the International Monetary Fund, 0:00:54.000 --> 0:00:58.680 particularly an international and Pacific rim economics and Bill, I'm 0:00:58.760 --> 0:01:01.840 thrilled to have you out after Jersey with a domestic 0:01:01.960 --> 0:01:09.200 feel to the rescue. Can it be international disinflation and deflation? 0:01:09.480 --> 0:01:13.600 Will they export price decline and we will import that 0:01:13.760 --> 0:01:17.200 price decline to assist America? 0:01:17.280 --> 0:01:19.959 Well, China is the story of disinflation in this world, 0:01:20.120 --> 0:01:23.040 and what we saw the latest Chinese data is just 0:01:23.120 --> 0:01:24.760 the opposite of what we're seeing here in the US 0:01:25.440 --> 0:01:27.959 the consumer is not strong enough to keep prices up, 0:01:28.480 --> 0:01:32.039 and the certain the factory prices are coming down like crazy. 0:01:32.400 --> 0:01:35.440 And the issue is how many goods from China are 0:01:35.480 --> 0:01:37.880 we going to be importing to offset some of the 0:01:37.920 --> 0:01:40.800 hotter domestic services. And I think Trip Paul's going to 0:01:40.840 --> 0:01:43.920 tell you not enough. China will be some help on 0:01:43.959 --> 0:01:46.600 the good side, but we already see that downward trend. 0:01:46.880 --> 0:01:49.520 And the thing that worries Chair Powell, however, is the 0:01:49.560 --> 0:01:53.520 domestic services. And unfortunately that the disinflation from the rest 0:01:53.520 --> 0:01:56.000 of the world just isn't going to do much to 0:01:55.680 --> 0:01:58.800 the price of auto mechanics and the price of auto insurance, 0:01:58.880 --> 0:02:01.600 the price of healthcare, which are the elements of core 0:02:01.720 --> 0:02:03.680 inflation that the FED is worried about. 0:02:03.840 --> 0:02:05.280 So talk to us about some of the spin out 0:02:05.280 --> 0:02:07.160 of China here, Bill. I mean, for me, you know, 0:02:07.160 --> 0:02:09.239 when I look at China deflation, and certainly that CPI 0:02:09.320 --> 0:02:11.680 print came in a little bit hotter than expected, I 0:02:11.800 --> 0:02:14.359 just disregard that, right. I mean, it's still about PPI 0:02:14.440 --> 0:02:16.520 in China. It's still about you know the fact that 0:02:16.560 --> 0:02:18.560 it's really I mean, prices are really coming under pressure. 0:02:18.600 --> 0:02:20.760 There on the property sector. Talk to us about some 0:02:20.800 --> 0:02:23.840 of the spin we're hearing about local government finance vehicles 0:02:24.040 --> 0:02:26.200 and the fact that it seems like Beijing may finally 0:02:26.240 --> 0:02:29.200 be willing to let some of them actually default. 0:02:29.200 --> 0:02:33.119 If I'm hearing that correctly, Damen, you've hit the real 0:02:33.160 --> 0:02:36.080 issue of China run in the head. Right now, China's 0:02:36.080 --> 0:02:40.880 economy is tottering because the shelter market, the property market 0:02:41.520 --> 0:02:45.320 is in disarray. And right now, so much of wealth 0:02:45.360 --> 0:02:47.320 in China is tied up in the property market. It's 0:02:47.360 --> 0:02:50.400 seventy percent of household wealth that the government is going 0:02:50.440 --> 0:02:52.280 to have to try to do something to support it. 0:02:52.480 --> 0:02:55.120 But now with suddenly what we're finding is that the 0:02:55.120 --> 0:02:57.720 government's telling us, you know, it may well be that 0:02:58.000 --> 0:03:01.760 some property developers may have to default and have to 0:03:01.760 --> 0:03:03.960 go out of business. That I think is a shocker 0:03:04.440 --> 0:03:07.359 because right now, I think that the reform that's needed 0:03:07.440 --> 0:03:11.480 in China is the reform property market that disperse well 0:03:11.600 --> 0:03:13.840 so that it just doesn't stay in the property market. 0:03:13.680 --> 0:03:18.960 But more importantly, the housing market in China requires some 0:03:19.080 --> 0:03:21.240 kind of government stops to give a affordable housing. 0:03:21.280 --> 0:03:22.000 That's well known. 0:03:22.280 --> 0:03:24.480 But do we have enough of a rental market so 0:03:24.520 --> 0:03:27.720 that the young urban professionals can actually rent rather than buy. 0:03:28.200 --> 0:03:31.680 And unfortunately, the way financing is done in China is 0:03:31.680 --> 0:03:35.040 that local governments depend on selling property to property developers 0:03:35.120 --> 0:03:38.320 to build new houses in order to survive, and that 0:03:39.000 --> 0:03:41.640 process is something that government seems to be wanted to perform. 0:03:42.200 --> 0:03:44.640 Build league with us with the Milken Institute Commercial Free 0:03:44.680 --> 0:03:46.920 in this hour, William Lee with us and then Jane 0:03:46.920 --> 0:03:49.800 Foley will join us from Rabobank. A nice lift out 0:03:49.800 --> 0:03:51.640 of the market, as we said with Ira Jersey, a 0:03:51.800 --> 0:03:54.480 churn there out of the news. But clearly there's a 0:03:54.520 --> 0:03:57.800 feeling your buoyancy and equities. The VICS comes into fourteen 0:03:57.840 --> 0:04:00.000 point five six, the fixed incomes space. 0:04:00.080 --> 0:04:01.200 This is very deceptive. 0:04:01.240 --> 0:04:04.440 You've got pretty much unch, ten year, unch, two year, 0:04:04.680 --> 0:04:07.120 I got a little bit of thirty bound love higher yield, 0:04:07.480 --> 0:04:09.120 But where you really see it's. 0:04:08.920 --> 0:04:10.360 The inflation is just to yield. 0:04:10.440 --> 0:04:14.120 Damien sis back to one point eighty two percent, and 0:04:14.160 --> 0:04:17.279 I'm sorry, we've basically gone round trip yep, back to 0:04:17.520 --> 0:04:22.280 inflation and real economy buoyancy. I guess this is how 0:04:22.320 --> 0:04:24.839 I would put it off that ten year real yield. 0:04:24.520 --> 0:04:26.280 Tom, and I'd like to highlight what Bill said, I mean, 0:04:26.360 --> 0:04:28.240 and it's not really about China. It's about the inflation 0:04:28.320 --> 0:04:30.719 dynamic and how it grips the globe, not just the US. 0:04:30.720 --> 0:04:33.120 Here and today, underneath the CPI print we saw here 0:04:33.160 --> 0:04:35.400 in the US, we got some inflation data out of India, Germany, 0:04:35.400 --> 0:04:38.279 and Brazil, and outside of Germany, which was flat Indian, Brazil. 0:04:38.480 --> 0:04:41.479 I mean, you're seeing price pressures rise. So you know, 0:04:41.720 --> 0:04:44.400 you know, when Bill talks about you know, PPI intflation 0:04:44.480 --> 0:04:46.360 in China and how that's being exported to the rest 0:04:46.400 --> 0:04:49.320 of the world. You know, Bill, take us through that calculus. 0:04:49.400 --> 0:04:52.320 How are we seeing inflation actually accelerate in some of 0:04:52.320 --> 0:04:54.239 these markets outside of the US. 0:04:55.279 --> 0:04:58.760 Well, the man of supply as you know, Damien, and 0:04:58.800 --> 0:05:01.560 on supply side, we don't see a lot of commodity 0:05:01.560 --> 0:05:04.240 prices going up because the rest of the world is economy, 0:05:04.720 --> 0:05:07.760 especially when we include China, just isn't strong enough to 0:05:07.760 --> 0:05:10.760 push up commodity prices to offset a lot of the 0:05:10.800 --> 0:05:15.240 deflationary trend on the industrial side. And for countries like 0:05:15.240 --> 0:05:18.400 the United States where the domestic service component is such 0:05:18.440 --> 0:05:22.800 an important part of overall inflation, we're somewhat insulated. We're 0:05:22.839 --> 0:05:26.640 really relatively closed economy when it comes to inflation. Other 0:05:26.720 --> 0:05:30.599 countries that are much more dependent on goods and their 0:05:30.720 --> 0:05:34.560 baskets are much more heavily dependent on goods rather than services. 0:05:34.839 --> 0:05:36.960 That's where the deflationary impact is the greatest. 0:05:37.279 --> 0:05:39.360 Got a great team here at Bloomberg. This is the 0:05:39.400 --> 0:05:40.520 secret of the terminal. 0:05:40.839 --> 0:05:44.920 We've got terrific top live market coverage riding the herd 0:05:44.960 --> 0:05:49.480 on inflation. Jis obviously quoted worldwide end occurring. Chris Ancy 0:05:49.600 --> 0:05:52.800 out there today in Sebastian Void some of the insights 0:05:52.839 --> 0:05:56.680 Damian Sasaur. The food index was unchanged except for Paul 0:05:56.720 --> 0:06:01.520 Sweeney's eighty six dollars steak out in the rockies somewhere. 0:06:01.720 --> 0:06:06.240 The core measure was boosted by shelter. You think in 0:06:06.320 --> 0:06:10.839 New York City airfares, You think motor vehicle insurance, what's 0:06:10.880 --> 0:06:13.960 a cost to ensure a car? Used to be like 0:06:14.000 --> 0:06:17.560 an afterthought? Forget about that. It's like it's like actually 0:06:17.640 --> 0:06:21.680 tangible apparel. That's you know, I mean, that's Lisa, She's 0:06:21.760 --> 0:06:25.320 going nuts on that. And what in God's name is recreation? 0:06:25.520 --> 0:06:26.359 I mean, I don't know what that. 0:06:26.440 --> 0:06:28.560 Definitely I can define recreation for you, but I prefer 0:06:28.600 --> 0:06:29.400 not to do it on airtime. 0:06:29.440 --> 0:06:31.440 Okay, why don't you go to Billy here? 0:06:31.480 --> 0:06:34.440 I mean Bill, Bill, you hit on I mean for something. 0:06:34.520 --> 0:06:36.960 I mean like this is just a clinic. I mean commodities, 0:06:37.080 --> 0:06:39.640 terms of trade, the importance of goods pricing and how 0:06:39.640 --> 0:06:42.240 that impacts markets, not just you know outside of the 0:06:42.320 --> 0:06:44.000 US who aren't so relying on it. Taught to us 0:06:44.000 --> 0:06:46.560 a little bit about that, talked to us about El Nino. 0:06:46.640 --> 0:06:49.360 I mean, we've had bad coffee harvest in Vietnam, poor 0:06:49.440 --> 0:06:52.640 cocoa yields in Africa, weeks soybing crops in Brazil. How 0:06:52.880 --> 0:06:56.640 is commodity prices or how are commodity prices, sorry, impacting 0:06:56.640 --> 0:06:58.120 inflation in other areas upon it. 0:06:59.200 --> 0:07:01.400 I think one thing we forgotten is that we have 0:07:01.440 --> 0:07:04.120 a war in Ukraine. Ukraine is a bread basket for 0:07:04.200 --> 0:07:07.920 the world in terms of wheat and cooking oil exports, 0:07:08.080 --> 0:07:10.520 and so what we actually have is a shortage in 0:07:10.600 --> 0:07:13.520 many many areas. Now it is offset by a lot 0:07:13.560 --> 0:07:17.080 of bumper harvests elsewhere. But I think that that uncertainty 0:07:17.160 --> 0:07:20.360 on the on the commodity supply side is something that 0:07:20.400 --> 0:07:21.880 the markets really haven't priced in. 0:07:22.400 --> 0:07:23.320 For the rest of the world. 0:07:23.480 --> 0:07:29.040 But the US trade is someone who's really focused on 0:07:29.280 --> 0:07:32.720 what impact this had on the consumer of the United States, 0:07:32.760 --> 0:07:35.840 and that really has very little because the other other 0:07:36.080 --> 0:07:39.200 countries have offset that uncertainty. But certainly a lot of 0:07:39.240 --> 0:07:43.000 the emergent markets depended on the Ukraine is really getting hurt. 0:07:43.200 --> 0:07:48.360 Standard in poor futures five to two, one seven up 0:07:48.400 --> 0:07:51.560 six tens of a percent now thirty nine thousand and 0:07:51.560 --> 0:07:53.960 three hundred. I'm not in the forty thousand watch yet. 0:07:54.120 --> 0:07:56.280 John Faraoh asked me that this morning. Is it not 0:07:57.120 --> 0:08:00.320 in the forty thousand watch yet? Nasak up as eight 0:08:00.360 --> 0:08:03.200 tens of present? Billy I had a couple more questions 0:08:03.880 --> 0:08:06.600 for you, and this goes off your heritage at the IMF. 0:08:07.320 --> 0:08:12.280 Grgavin Companies stopped me cold pushing on a year ago 0:08:12.960 --> 0:08:17.640 with a five year view that was remarkably tepid on 0:08:17.800 --> 0:08:22.200 global growth, including America. Is that five year gloom being 0:08:22.320 --> 0:08:26.640 tested right now? Does a new productivity at some point? 0:08:26.800 --> 0:08:29.720 Is it going to make for a more optimistic IMF 0:08:29.840 --> 0:08:30.640 five year view? 0:08:32.040 --> 0:08:36.080 The IMF right now is continuing to bring down its 0:08:36.120 --> 0:08:39.400 longer term forecast because population growth in the developed countries 0:08:39.559 --> 0:08:44.760 is slowing down tremendously. But as you know, technological progress 0:08:44.840 --> 0:08:46.240 is something that could offset. 0:08:45.960 --> 0:08:46.360 Some of Right. 0:08:46.960 --> 0:08:50.080 We both live through the computer PC revolution of the nineties, 0:08:50.400 --> 0:08:53.000 and the data show that we got a huge productivity 0:08:53.040 --> 0:08:55.840 boost with the introduction of the computer and PC during 0:08:55.840 --> 0:08:59.120 the nineties, and unfortunately it was transitory. It did, but 0:08:59.240 --> 0:09:02.000 the translatory it was over a decade, and it doubled 0:09:02.240 --> 0:09:06.720 the profits per unit of output during that period. We 0:09:06.720 --> 0:09:09.920 we're seeing the beginning of a similar revolution AI, and 0:09:09.960 --> 0:09:12.760 I'm very confident that would they be seeing that kind 0:09:12.760 --> 0:09:15.360 of productivity boost and that will offset some of the 0:09:15.440 --> 0:09:17.120 price pressure that we're seeing, but it won't do it 0:09:17.160 --> 0:09:19.280 for another two three years, and that's what the FED 0:09:19.360 --> 0:09:21.520 is looking forward to. And markets have not price dated 0:09:21.640 --> 0:09:23.880 properly because the neutral rate is going to be much 0:09:23.960 --> 0:09:26.720 higher over the next three to five years than markets 0:09:26.720 --> 0:09:27.439 are anticipating. 0:09:27.559 --> 0:09:30.160 Robert from a goalie camp up near Hamilton. It's up 0:09:30.160 --> 0:09:31.880 near Lake Marine. I don't know if it's called Gator. 0:09:31.920 --> 0:09:36.360 Hamilton Auto Insurance up twenty one percent year over year, Robert, thank. 0:09:36.200 --> 0:09:38.000 You for that. Billy. 0:09:38.120 --> 0:09:41.199 I want to dovetail in your wisdom in your experience 0:09:41.720 --> 0:09:44.120 with my book of the Summer. Chris Miller's Chip War. 0:09:44.840 --> 0:09:49.440 Whither Taiwan? How fragile does a giant like Bill Lee 0:09:49.920 --> 0:09:54.080 see Taiwan in their integrated circuit system? 0:09:54.240 --> 0:09:58.640 Right now, you have to remember that Taiwan is going 0:09:58.679 --> 0:10:02.560 to be your source of the productivity revolution and ai revolution. 0:10:03.400 --> 0:10:06.520 If China really decides to make use of the of 0:10:06.720 --> 0:10:10.880 the disruptions in the world and the joke little giplical 0:10:10.960 --> 0:10:15.160 uncertainty by doing something to Taiwan to threaten its independence, 0:10:15.640 --> 0:10:18.360 you're going to start seeing that supplies shortages of the 0:10:18.400 --> 0:10:20.679 sort thing you never saw before. COVID's gonna look like 0:10:20.720 --> 0:10:22.960 a little drop in the bucket compared to what a 0:10:23.000 --> 0:10:25.280 shortage of chips will do. And I think that's the market. 0:10:25.320 --> 0:10:29.080 That's something the markets have completely underestimated. So I think 0:10:29.120 --> 0:10:34.400 the risk of a sustained huge productivity shock and a 0:10:34.440 --> 0:10:38.800 supply supply shortage of chips is very, very real if 0:10:38.880 --> 0:10:42.920 China starts to divert attention from its uh withering economy 0:10:43.240 --> 0:10:46.760 by focusing on a little bit more aggressive posture to 0:10:46.800 --> 0:10:48.679 try to race nationalism. 0:10:48.880 --> 0:10:52.720 And this goes to Erinal Stravitaz's new book twenty fifty four. Today, 0:10:52.800 --> 0:10:56.559 thank you James Travenas for being with us before Billy, Damian. 0:10:56.360 --> 0:10:58.679 Bill, bond's a rallying here. I mean, we've got the 0:10:58.720 --> 0:11:01.120 two europe to down two BIPs, we've got the tenure 0:11:01.160 --> 0:11:03.680 down two BIPs of four eight percent, and the dollar 0:11:04.000 --> 0:11:07.000 is rallying. Bill, talk to us about that. I'm sorry, 0:11:07.360 --> 0:11:09.800 falling taught to us about the runway for the dollar 0:11:09.840 --> 0:11:12.480 to weaken in this environment. I mean, you know, most 0:11:12.480 --> 0:11:15.079 people would think, you know, structurally speaking, real yields or 0:11:15.240 --> 0:11:16.960 you know, yield differentials here in the US are going 0:11:17.040 --> 0:11:19.640 to remain wide. You know, you've got the US exceptionalism 0:11:19.679 --> 0:11:22.200 story taught to us about the runway for dollar weakness. 0:11:21.880 --> 0:11:25.240 Here, Damian, I think the story of that you were 0:11:25.280 --> 0:11:26.880 just talking about that we got a little bit harder 0:11:26.920 --> 0:11:30.720 print on inflation. And yet the fixed income markets are 0:11:30.760 --> 0:11:33.840 pretty confirmed with the fact that we are in a 0:11:33.880 --> 0:11:37.600 declining rate environment. So they're very confident that Suir Pal 0:11:37.800 --> 0:11:41.240 will be lowering rates. The issue is how much, how soon, 0:11:41.320 --> 0:11:44.400 and how fast. And it seems like the burst of 0:11:44.440 --> 0:11:48.160 inflation that we saw today isn't enough to convince markets 0:11:48.160 --> 0:11:51.320 that the FED will be deterred from its downward path. 0:11:51.679 --> 0:11:53.560 You know, and Bill I touched on yield differentials, and 0:11:53.600 --> 0:11:56.040 there's no wider yield differential than you look at, you know, 0:11:56.080 --> 0:11:58.400 any currency and China, right, I mean you look at 0:11:58.480 --> 0:12:00.319 yields in China the ten years at what two thirty 0:12:00.320 --> 0:12:02.520 four now, I mean just off an all time low. 0:12:02.880 --> 0:12:06.000 Talk to us about this funding currency dynamic with the 0:12:06.000 --> 0:12:09.400 BOJ now potentially tightening rates and you know, basically the 0:12:09.640 --> 0:12:11.520 the you know, you know, Japan no longer being a 0:12:11.559 --> 0:12:15.480 funding investors paradise. How you've seen some switching into the 0:12:15.559 --> 0:12:18.839 China yuan, into a currency that seems weak and might 0:12:18.880 --> 0:12:19.679 even weaken further. 0:12:20.760 --> 0:12:23.680 Yeah, absolutely, And in fact, I think the markets have 0:12:23.760 --> 0:12:27.880 really misplaced its its its attention on the Japanese yen. Yes, 0:12:27.920 --> 0:12:30.520 it is the funding currency, but the Japanese yen is 0:12:30.559 --> 0:12:34.439 also something that that has traditionally been a domestic currency 0:12:34.480 --> 0:12:38.040 and domestic uh bond market because most of the holders 0:12:38.080 --> 0:12:42.280 of jgb's are Japanese. And I think the fact that 0:12:42.360 --> 0:12:45.200 China has really pushing its way into becoming a reserve 0:12:45.280 --> 0:12:50.480 currency and digitizing it's its economy, digitizing its currency, trying 0:12:50.480 --> 0:12:52.920 to get more and more emerging markets to use it 0:12:52.960 --> 0:12:55.600 as a transactions currency, that the prominence of the run 0:12:55.679 --> 0:12:57.080 and be in the future is going to be much 0:12:57.120 --> 0:12:59.600 greater than I think that people realize, and that may 0:12:59.679 --> 0:13:03.880 be that that next competitor for the US dollar prominence. 0:13:04.160 --> 0:13:06.960 Billy, thank you so much with the Milkin Institute. What 0:13:07.000 --> 0:13:20.080 a what a smart idea for your team. Greg Daka 0:13:20.280 --> 0:13:22.840 joins us right now with Ernst and Young. I'm sorry, 0:13:22.880 --> 0:13:23.640 I'm old school. 0:13:23.640 --> 0:13:25.840 It's not e y. Yeah, I know you got eight 0:13:25.880 --> 0:13:29.080 consultants saying it's e y, it's Ernst and Winnie. 0:13:30.120 --> 0:13:33.080 Okay, my grandfather's accounting firm was Ernstan Winnie. 0:13:32.800 --> 0:13:33.640 So I'm always there. 0:13:33.920 --> 0:13:37.679 E y E I E y parthenon. Greg dot Co 0:13:37.880 --> 0:13:40.800 is with us right now. I want you to talk 0:13:41.400 --> 0:13:46.360 about the disconnect of fancy people like you and our 0:13:46.400 --> 0:13:50.480 listeners and viewers are going these people are nuts. There's 0:13:50.600 --> 0:13:54.280 no disinflation. I get that more than any other comment 0:13:54.760 --> 0:13:58.600 from the fans out there. There's a massive disconnect between 0:13:58.760 --> 0:14:00.640 society and people like you. 0:14:00.840 --> 0:14:03.320 Right There is a massive disconnect, and that's because most 0:14:03.320 --> 0:14:06.320 people don't necessarily think about inflation the same way as 0:14:06.320 --> 0:14:10.840 economists and academics think about inflation. When we think about inflation, 0:14:10.880 --> 0:14:14.000 it's essentially the pace of growth of prices of costs 0:14:14.000 --> 0:14:17.280 of wages. Most people think in nominal terms. Most people 0:14:17.320 --> 0:14:19.880 think in terms of levels, right. They think about cost 0:14:19.920 --> 0:14:22.360 levels when they go buy their groceries, when they're by 0:14:22.560 --> 0:14:25.720 gas or even business leaders think about wage levels in 0:14:25.800 --> 0:14:29.000 terms of the aggregate wage bill or company. Tom is 0:14:29.040 --> 0:14:29.560 the disconnect? 0:14:29.640 --> 0:14:29.840 Tom? 0:14:29.840 --> 0:14:31.520 Did you see Greg Daka when he came in, he 0:14:31.560 --> 0:14:34.120 brought his laptop. He was ready for this inflation print. 0:14:34.160 --> 0:14:35.560 He had a lot with him, a lot of equipment, 0:14:35.560 --> 0:14:37.920 a lot of hardware. Greg, what was your big takeaway? 0:14:37.960 --> 0:14:40.400 And I take you point He walked in and plugged 0:14:40.400 --> 0:14:42.120 it in stack isle of dimmed. 0:14:42.760 --> 0:14:44.360 You know, I don't know if you caught this. Yesterday. 0:14:44.400 --> 0:14:47.640 Gary Cohene, former CEO of Goldman Sachs, was on the 0:14:47.640 --> 0:14:49.840 tape talking about exactly where we're talking about the additive 0:14:49.920 --> 0:14:52.120 nature of inflation. Right, we think of it as a 0:14:52.200 --> 0:14:55.720 rate of change, but your average you know, consumers thinking 0:14:55.760 --> 0:14:57.640 of levels of price levels. You know, talk to us 0:14:57.640 --> 0:15:00.760 about your big takeaway? What should the US concus be 0:15:00.840 --> 0:15:01.920 taking away from this print? 0:15:02.200 --> 0:15:04.680 Well, I think generally we're still moving in the right direction, 0:15:04.760 --> 0:15:08.040 so there's still that disinflationary impulse. It's going to be bumpy. 0:15:08.160 --> 0:15:09.680 It was bumpy on the way up, it's going to 0:15:09.680 --> 0:15:11.600 be bumpy on the way down. But the thing is 0:15:11.600 --> 0:15:14.520 that if you look back at price levels relative to 0:15:14.560 --> 0:15:18.160 twenty nineteen, we're about twenty twenty one percent higher in 0:15:18.240 --> 0:15:21.640 terms of price levels on average relative to pre COVID. 0:15:22.000 --> 0:15:24.680 That is what most people are thinking about when they 0:15:24.680 --> 0:15:25.480 think about inflation. 0:15:25.520 --> 0:15:28.720 Pro tip I measured in dog food exactly. 0:15:28.720 --> 0:15:32.280 It's way above the number you just everybody, everybody's got 0:15:32.320 --> 0:15:36.240 a different thing. I'm sorry, what Vet Bill, No, it's 0:15:36.240 --> 0:15:39.160 Gainsburger's What Vet Bill and Canal Fee are charge of 0:15:39.240 --> 0:15:40.680 me is is ridiculous. 0:15:40.720 --> 0:15:41.760 We're on Apple CarPlay. 0:15:41.800 --> 0:15:44.680 We are commercial free across this inflation report. 0:15:44.720 --> 0:15:45.440 What a great. 0:15:45.200 --> 0:15:48.160 Lineup, Ira Jersey to Bill Lee, Greg Dakl joining as 0:15:48.200 --> 0:15:50.720 some Uy parthenon right now on YouTube. 0:15:50.720 --> 0:15:53.440 It's just real simple, folks. Go to YouTube. You're in 0:15:53.480 --> 0:15:56.440 your bedroom, you're in your living room, you're in your whatever. 0:15:56.600 --> 0:16:00.640 Go to YouTube, search Bloomberg Podcasts and we are there 0:16:00.640 --> 0:16:02.800 with a wonderful live chat as well. 0:16:02.880 --> 0:16:05.080 Damien, Yeah, talk to us about shelter. We talked to 0:16:05.120 --> 0:16:06.720 us about some of the components within the print we 0:16:06.800 --> 0:16:07.920 just saw. Greg, I don't know if you had a 0:16:08.000 --> 0:16:09.280 chance to take a look, I mean, talk to us 0:16:09.280 --> 0:16:11.960 about the supercore, anything there that we should be taking away. 0:16:12.200 --> 0:16:15.800 Well, I think, generally speaking, housing inflation is still the 0:16:15.840 --> 0:16:18.520 area of concern. When it comes to overall inflation. We 0:16:18.560 --> 0:16:21.480 still have shelter cost inflation in the six percent vicinity. 0:16:21.800 --> 0:16:24.360 It needs to come down to around four percent to 0:16:24.480 --> 0:16:27.720 bring headline inflation and core inflation back down towards that 0:16:27.760 --> 0:16:30.960 two two and a half percent range. We're not there yet. 0:16:31.200 --> 0:16:34.000 We know there was a lot of noisiness in the 0:16:34.080 --> 0:16:37.560 January data. The BLS had a commodity price webinar to 0:16:37.600 --> 0:16:40.640 explain where some of the volatility came from, especially on 0:16:40.680 --> 0:16:44.000 the owner's equivalent side of the picture. But we are 0:16:44.080 --> 0:16:46.720 seeing this inflation continue to filter through. It's just taking 0:16:46.760 --> 0:16:49.720 a little bit longer from a FED perspective, from an 0:16:49.720 --> 0:16:53.680 economist perspective, from an investor's perspective. Inflation is still moving 0:16:53.720 --> 0:16:56.400 towards that two percent target, and that will allow the 0:16:56.440 --> 0:17:00.200 FED to gradually ease monetary policy. Not in March, not 0:17:00.320 --> 0:17:01.640 in May, probably in June. 0:17:01.680 --> 0:17:03.640 Well, I mean that's interesting, So June we're looking for it. 0:17:03.640 --> 0:17:06.040 But you know, the question I have is, Okay, we 0:17:06.080 --> 0:17:07.760 can get that cut in June, but then are we 0:17:07.800 --> 0:17:10.359 expecting successive cuts the way the market's pricing, and I 0:17:10.359 --> 0:17:12.480 mean what's interesting is if you look at Ois and 0:17:12.520 --> 0:17:14.520 you look at Decembergreg, and you know this as well 0:17:14.520 --> 0:17:16.680 as anyone. You know, we're pricing in three four cuts 0:17:16.720 --> 0:17:19.159 through the end of this year. But my goodness, the 0:17:19.320 --> 0:17:22.760 probability distribution around what might actually happen by the end 0:17:22.760 --> 0:17:24.720 of this year. I think you've got options markets telling 0:17:24.720 --> 0:17:26.399 you it could be a hike or you can have 0:17:26.480 --> 0:17:28.320 five cuts. I mean, talk to us a little bit 0:17:28.320 --> 0:17:29.879 about what the market has right and what it has 0:17:29.880 --> 0:17:31.160 wrong here on a forward basis. 0:17:31.200 --> 0:17:34.600 I think the key differential here in terms of participants 0:17:34.640 --> 0:17:37.560 FED participants view of where monetary policy is going to head, 0:17:37.560 --> 0:17:40.719 where investors think policy is going to head is largely 0:17:40.720 --> 0:17:43.080 a function of the fact that the FED is heavily 0:17:43.520 --> 0:17:47.000 data dependent, and that heavy data dependence in a volatile 0:17:47.080 --> 0:17:50.400 environment is a very risky proposition because anytime you get 0:17:50.400 --> 0:17:53.960 a reading that's not in line with inflation expectations, with 0:17:54.000 --> 0:17:58.680 employment expectations, markets start to rapidly reprice expectations. 0:17:58.800 --> 0:17:59.359 You have an. 0:17:59.240 --> 0:18:02.240 EI different cents you people through and then consulting really 0:18:02.240 --> 0:18:05.359 have a different handle across the fabric of America from 0:18:05.960 --> 0:18:09.520 market economists and Wallstreet ORNs. What is Ey seeing in 0:18:09.640 --> 0:18:12.560 terms of GDP spirit out there. 0:18:12.800 --> 0:18:14.720 Well, I think there are two things that we're hearing 0:18:14.800 --> 0:18:17.680 from our clients that have differentiated our perspective in terms 0:18:17.680 --> 0:18:20.280 of the economy. Number one, the fact that the labor 0:18:20.320 --> 0:18:23.120 market is very different today than it was before the pandemic. 0:18:23.280 --> 0:18:25.680 The value of talent remains much higher. We had been 0:18:25.720 --> 0:18:28.600 telling a lot of our clients that because that value 0:18:28.640 --> 0:18:30.040 is higher, we weren't going to see the way of 0:18:30.040 --> 0:18:33.359 a layoffs that we've seen in prior pre recessionary environments. 0:18:33.600 --> 0:18:36.560 That's what's held up the economy. Number Two, there's much 0:18:36.720 --> 0:18:40.280 less pricing power. That is why I'm confident that the 0:18:40.359 --> 0:18:43.640 last disinflation mile will not be the most difficult. More 0:18:43.680 --> 0:18:47.240 price in sensitivities, reduce markups. Those are the types of 0:18:47.320 --> 0:18:50.040 dynamics that in the end really drive inflation. It's not 0:18:50.119 --> 0:18:53.400 about the month over month change in some idiosyncratic factors. 0:18:53.640 --> 0:18:56.720 Thank you, Greg Docom, I greatly appreciate it. Ey parts 0:18:56.760 --> 0:19:02.439 then women from Michigan thrilled to have with us this 0:19:02.520 --> 0:19:05.399 morning for this entire half our Michael Wilson. He is 0:19:05.400 --> 0:19:10.439 at Morgan Stanley, coach Effequity Strategies CIO, and among other things, 0:19:10.920 --> 0:19:15.119 author and driving force behind Really Smart thirty six page 0:19:16.000 --> 0:19:17.760 research pieces. 0:19:17.600 --> 0:19:21.359 On what matters at the moment. Mike Wilson, good morning. 0:19:21.800 --> 0:19:21.879 You. 0:19:22.000 --> 0:19:25.639 People have done a tour to force on AI and 0:19:25.720 --> 0:19:28.840 on what's to come. Does Mike Wilson believe in the 0:19:28.880 --> 0:19:31.040 stock market and believe in AI? 0:19:33.080 --> 0:19:36.240 Well, good morning, Tom, Yeah, thanks for having me. We 0:19:36.280 --> 0:19:37.120 do believe in AI. 0:19:37.200 --> 0:19:41.520 We've been probably more front footed on this theme as 0:19:41.560 --> 0:19:44.000 a firm over the last year year and a half. 0:19:44.200 --> 0:19:46.760 And the way I would characterize it is is that 0:19:47.359 --> 0:19:51.320 this is the next big probably the next big productivity driver, 0:19:52.240 --> 0:19:55.159 but it's not going to happen immediately, and we're seeing 0:19:55.200 --> 0:19:59.200 that manifest itself in the stock market right so so far, 0:20:00.160 --> 0:20:03.160 what's really worked from AI has been what we call 0:20:03.240 --> 0:20:06.840 the enablers, the companies that are allowing this new. 0:20:06.720 --> 0:20:08.880 Platform to be developed and built out. 0:20:08.920 --> 0:20:13.280 And we've seen obviously some of the stocks go somewhat stratospheric. 0:20:13.600 --> 0:20:17.440 And the real opportunity though, is going to be when 0:20:17.600 --> 0:20:21.360 this technology diffuses across the economy. 0:20:21.480 --> 0:20:24.400