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The Inflation Story Is Benign, David Kelly Says

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Bloomberg Dec 11, 2024 22:27 · 77k Views

David Kelly, JPMorgan Asset Management chief global strategist, says the inflation story is benign and the Federal Reserve's dot plot will be a little more cautious. He's on "Bloomberg Surveillance" reacting to the report that showed US consumer prices rose in November.

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Transcript

  • 00:00 Joining us now on everything else, David Kelly of JP Morgan.
  • 00:03 I with a reaction to what we just got basically bang in line with expectations.
  • 00:07 I imagine you're going to
  • 00:09 sort of talk about how this is exactly as expected, the disinflationary trend intact.
  • 00:14 What's your take?
  • 00:16 Well, I think
  • 00:17 it's, it's pretty interesting because when you dig into the data, what we have is rich American inflation,
  • 00:22 we've got poor worlds deflation.
  • 00:25 So if you actually look at the, you know, where do we see inflation
  • 00:28 in November?
  • 00:29 We saw another 4/10 in airline fares.
  • 00:31 We saw another 5/10 in hotel rates,
  • 00:33 we saw another 6/10 in new vehicle prices.
  • 00:36 So the stuff that the rich buy because it got money
  • 00:39 is, is going up.
  • 00:40 But if you look at,
  • 00:42 you know, energy
  • 00:43 in recent months has come down a lot.
  • 00:46 And then as Michael was pointing out to to the things that have been holding inflation up, which are shelter costs and
  • 00:53 and auto insurance were both very mild in this report.
  • 00:56 So what that tells me is
  • 00:58 if barring some shock, the CPI numbers will trend down next year.
  • 01:02 And I, you know, the next few months are going to show some high year over year numbers.
  • 01:05 But by next spring, I think we're going to be below 2% in year over year CPI.
  • 01:09 But it's really going to be because
  • 01:11 of a lot of ordinary goods and services bought by ordinary people
  • 01:15 seeing some deflation pressure even while things that that the play things and and
  • 01:20 play activities of the rich get more expensive.
  • 01:22 We are seeing right now to your yields take a leg lower as people look through this and get on board with what you're talking about.
  • 01:29 David, in terms of inflation coming in, how do you dismiss this idea that some of the drivers of inflation, I'm thinking about airplane costs, I'm thinking of cars, I'm thinking about other sectors
  • 01:41 are likely sitting starting to see another revival of inflation.
  • 01:45 How do you discount some of those
  • 01:47 anecdotes at a time where the cycle has been so confusing?
  • 01:52 Yeah, I, I don't think that's likely to happen, barring policies, some policy change.
  • 01:57 Well, you know what?
  • 01:57 I
  • 01:58 focus on a lot of this things like labor costs.
  • 02:00 And we see no evidence that American workers are getting the kinds of wage increases which would ultimately generate inflation from from below.
  • 02:09 So I don't think that's what's going to happen.
  • 02:11 But I do think that
  • 02:12 when the Federal Reserve looks at it, they're going to have to look with one eye on what's really going on in the economy right now and one eye on what might be coming in terms of policy going forward.
  • 02:22 So I do expect that the the dog plot next week
  • 02:25 will be a little bit more cautious than the one in September.
  • 02:28 I think they'll try and take some rate, rate cuts off the table here
  • 02:31 in the out years, even though we expect they'll cut in December.
  • 02:34 So right now, I'd say the inflation story is still benign.
  • 02:38 It's cooling.
  • 02:38 It's cooling very slowly, but it's still cooling.
  • 02:41 But the question is what are we going to do to that when we when we attack this with policy changes next year?