Forget the headline inflation focus on the core and median - Look what happened

The premise of transitory inflation is that headline inflation numbers are driven by some outliers that are associated with logistical failures and congestion. Once the economy is back up and moving from the pandemic these relative price outliers will dampen and inflation will settle at a number that may be above 2% but not unreasonable. Allowing these fluctuations are the foundation of Flexible Average Inflation Targeting (FAIT) or Temporary Price Level Targeting (TPLT). While the headline may move around, investors should focus on the core or the median inflation. These will be more stable and representative of the true inflation.

We got the latest median CPI as measured by the Cleveland Fed, and it has now printed a level that is the highest since the 1980's. This is not supposed to happen. This is not in the Fed playbook, yet this is the reality. The response has been quick by investors. The expectations of a rate rise have been moved forward. The expectations of tapering sooner have also moved forward. Rebalancing away from inflation sensitive assets has increased. The world has changed since the summer.