Mongkol Onnuan
The case for weaker inflation going forward is quite strong, said Neil Dutta, head of U.S. economic research at Renaissance Macro.
During an interview with Bloomberg, Dutta said it appears the Federal Reserve was able to successfully trim excess labor. demand without increasing unemployment too much.
The unemployment rate rose to 3.9% in April from 3.8% in March, while job openings fell to 8.5 million in March, down 1.1 million over the year, according to the Bureau of United States Labor Statistics.
Additionally, the employment cost index rose 1.2% in the first quarter, “but the underlying drivers of that data are the average hourly earnings of non-supervisory workers, and in April we saw that cooling,” he said .
Over the past three months, average hourly earnings growth for non-supervisory workers has increased by 3% at an annual rate. This is growth that is “broadly consistent with the Federal Reserve's underlying inflation goals, which is why unit labor costs have been cooling,” she added.
So where does inflation come from? Dutta said it's not because expectations have risen again, nor because labor markets are overheating; nor because the dollar is weakening and driving up the prices of imported consumer goods (the dollar has generally been stronger).
“So you can point to things like financial services inflation (rising) and health care services (rising, as well as) all motor vehicle insurance,” he said, “these idiosyncratic factors.”
