No 664 - When will inflation arrive?

　　磐石金融有限公司（ BANDS Financial Limited ）在香港注册成立，是一家持有香港证监会（SFC）2号牌照的期货经纪公司，业务涉及中国以外全球大部分活跃期货及期权市场。

　　Last night Fed policymakers were unpersuaded that unemployment or inflation are at levels that would cause them to amend their policy direction so they left the federal funds rate unchanged at 0-0.25% and will continue to purchase bonds at a rate of $120 billion a monthHowever, I have never been happy with the various indices of inflation, as these have never reflected my portfolio of price exposures. Certainly, for many years in the UK, my two biggest expenses were the cost of a mortgage and child education. The second of which went up 10-15% a year, every year, as my children got older. Although I have travelled extensively I have never lived in core inflation land, a place that excludes the cost of food and energy. So let us agree, the usefulness of an index depends on what you count. And in terms of inflation indexes what you count defines the output.The US Consumer Price Index is weighted: housing 41.4%; food and beverages 17.4%; transport 17.0%; medical care 6.9%; apparel 6.0%; entertainment 4.4%; other 6.9%. On this basis, the US CPI index rose to 2.6% in March from 1.7% in February, slightly above market forecasts of 2.5%. At the same time, the US house price index YoY rose 12.2% in Feb up from 11.9% which led me to wonder why the US inflation number was not higher？The answer to that question is that the index compilers consider buying a house to be an investment, therefore the US CPI uses rental rates to measure the cost of housing and not the cost of the average mortgage. As anyone may understand rental rates are not the same as the cost of being an owner-occupier. In the real world, rental costs may be very sensitive to income and unemployment numbers in the short term. But, maybe, in the medium-term rental rates are not entirely divorced from the cost of homeownership, as in my experience rents usually hover just below the cost of buying a similar property. As the US economy recovers and the unemployed find work then rental rates will rebound. And in a quick and unscientific search of estate agent sites in the US this morning, it seems in their commentary US rental rates are recently rising sharply, but to a basis not yet above pre-covid levels.So will Fed Chair Powell be forced to change course, will US CPI go significantly above the current 2.6% level？ Using our long-range telescope above, and rental rates recover to above pre-covid levels and begin to reflect rising property costs, and this lagged reaction finds its way into the CPI computation, one might be tempted to think so.Have a good day

　　Joh