The 'last mile' of disinflation is going to get a lot trickier, says Mohamed El-Erian

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12월 CPI는 디스인플레이션 흐름을 유지할 것으로 보이나, 이후 1~2분기는 공급 충격(홍해), 기저효과 소멸, 서비스 물가 끈적임으로 '마지막 1마일'이 어려워진다. 연준이 올해 최소 75bp 인하하지 않으면 정책 실수가 될 수 있으며, 시장의 3월 인하 및 150bp 인하 기대는 낙관적이고 첫 인하는 여름 무렵이 더 유력하다. 연준의 긴축 정도와 금융여건에 대한 논쟁이 진행 중이다.

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01. in just under 90 minutes we'll get the latest reading on consumer prices the key CPI inflation report is expected to show that higher prices were still on a downward trajectory in December at the core level for insights on what that report could mean for the fed and the markets we want to bring in Muhammad alaran he is chief economic adviser at alian also the president of Queens College at Cambridge University Muhammad um had a group of students who were in with us yesterday and they asked a question about how we prepare for the CPI and it got me thinking you know we used to not really give a whole lot of credence to a CPI report but in the last four or five years it has gotten much more important I guess the last four years as inflation spiked this is a key number um what what will you be watching and if the number comes in at 3.8% as expected how how should we react to that good morning Becky first it is a key number not just because of what it tells you about the economy what it tells you about fed policy it also tells you about markets it also has a political Dimension and a social Dimension so it's among the most important numbers right now and the hope is that we're going to continue to see um this smooth disinflation so this report in particular should have core inflation coming down a bit headline inflation will be a bit more sticky um going forward it's going to get get trickier the so-called last mile is going to get a lot trickier um we're not going to have the the Tailwinds that we had and we're going to have some headwinds so I'm not really worried about this report but the next three are going to be particularly interesting what are those headwinds so we're seeing further disruption on the supply side um what's happening in the Red Sea is significant if it persists it will have a stag FL aary impact that's one second you not the headline the um base effects are not going to be working for you anymore and then third there's a limit to how much Goods disinflation we we going to get we need to see services this inflation come down so far we've benefited because certain Goods have been in outright deflation and that has dragged the averages down but we now need to see more on the service side and the service side tends to be a little bit more sticky so keep an eye for the next three we've had a good run and we expected a good run but a lot of people keep on talking about this last Mile and ultimately um and John Williams used the phrase yesterday a longer term goal of 2% it really matters what longer term means If It Means A couple of years then we will avoid a another fed policy mistake if it means this year then we wishk sacrificing growth unduly so you think if the FED were to not cut rates are you thinking the first half of the year or the second half of the year I'm thinking more towards the summer I think the the I think right now the market is too optimistic on timing you know there's a almost 60% chance priced in of a March cut and it's too optimistic that we'll get almost 150 basis points I think we're more likely to see the first cut in summer and we more likely to see closer to the 75 basis points that the FED has signaled but your implication here is that they will make a significant policy mistake if they don't cut at that point yeah I think if if we end up the year with them hiking very unlikely hiking or not not cutting at least 75 basis points that would be a policy mistake even though all of these headwinds that you just mentioned could could mean that we've seen the end of the disin inflationary curve yeah and and and there's a there's a very active debate going on right now among economists on two things one is to what extent is the Fed responsible for the reduction in inflation and secondly how do you define restrictive so John Williams yesterday said it is restrictive and he's looking at the real rate and he's looking at the rear rate versus neutral rate if you look at the Chicago fed it suggests that Financial conditions are as Loose as they were in in the beginning of 2022 so you know we're going to learn a lot during the year but my sense is that if you don't validate at least the 75 basis points you may end up getting quite an economic and financial reaction in particular Muhammad you mentioned that this CPI number is so important because it has so many aspects including economic in aspects but also political and we are in an election year so if you're thinking the fed's going to be cutting rates in the second half of the year the summer as we head into the fall I mean that puts you smack dab in the middle of the election season how much more complicated does that make it and and is it less likely that they will act because they don't want to be seen as acting politically no no I I don't think they're going to be influenced by the political calendar if it it means stopping them some people are worried that it goes the other way um look that the inflation number is critical if you want to understand why is it that the average American doesn't give this Administration the benefit it deserves in terms of creating jobs a 3% inflation uh 3 3.7% unemployment rate is because inflation has really hurt and has hurt in such a way that people now expect not just lower inflation they expect deflation they expect prices to come down so telling them that the inflation rate is down to 3.9% core or 3.3 % headline isn't good enough they they expect prices to come down and that's not going to happen when you paycheck buying less Muhammad it's hard to say God what a great job uh we're doing