INSIDE ECONOMICS

Mark Zandi:                      Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics. I'm joined by my two co-hosts, Ryan Sweet. Ryan is the director of Realtime Economics, and Cris deRitis, Cris is the deputy chief economist. Well, this is Saturday morning, a little unusual for us. Did you have a good start to the day?

Cris deRitis:                       Yeah, so far so good.

Ryan Sweet:                      Yeah.

Mark Zandi:                      So far so good?

Cris deRitis:                       Any day that starts with coffee is a good day.

Mark Zandi:                      Wawa coffee? No, you've got your own espresso machine.

Cris deRitis:                       I've got my own special blend.

Mark Zandi:                      Yeah, Ecuador, little Columbian, and some Egyptian?

Cris deRitis:                       Nicaragua. You got to mix them up.

Mark Zandi:                      Nicaragua. [inaudible 00:00:57] coffee.

Cris deRitis:                       I really like the Indian. I like the Indian coffee actually.

Mark Zandi:                      Oh really?

Cris deRitis:                       Which I didn't think they were a major grower, but apparently they are.

Ryan Sweet:                      Can you drink Wawa coffee, or is it just so far below your standards?

Cris deRitis:                       I love Wawa coffee. I'm not a coffee snob.

Ryan Sweet:                      All right.

Cris deRitis:                       Despite the image that Mark tries to project. Yeah.

Mark Zandi:                      Yeah, you're an eclectic coffee drinker.

Cris deRitis:                       No, maybe an addict. More of an addict.

Mark Zandi:                      I mentioned Egypt. I can't imagine they have got coffee beans in Egypt, no? Do you know?

Cris deRitis:                       I don't know, but coffee comes from that part of the world.

Mark Zandi:                      Of the world.

Cris deRitis:                       Or around there. I don't know. I doubt though. I think it's a little further south.

Mark Zandi:                      I've often thought that everyone should take at least a half hour out of their day, you should exercise a half hour, something like that, every day. You should take a half hour and just think about how to improve the way you live. Coffee, like I don't think about it at all. I just walk into Wawa, and I get my hazelnut coffee, 16-ounce, three little half and halfs, but it's got to be better than that, right?

Cris deRitis:                       That's not even coffee. Come on.

Mark Zandi:                      There you go. I knew it. So what am I missing? I'm missing so much.

Cris deRitis:                       Hazelnut plus the creamer?

Mark Zandi:                      Yeah. Right. You guys think about your coffee. People think about their wine, they think about what shoes to buy. I don't think about any of that. I'm missing so much.

Ryan Sweet:                      You're just on autopilot.

Mark Zandi:                      I'm on autopilot.

Cris deRitis:                       You're thinking about the numbers.

Mark Zandi:                      Oh, but I got to do this. I got to do this. Anyway. Well, here it is, Saturday morning. The reason is that I was traveling yesterday on Friday and got delayed. So unfortunately, we couldn't record that until this morning, but that's okay. We've got perspective now on that consumer price report, which was pretty miserable. We knew it was going to be miserable, but it was more miserable than we thought. So maybe let's just dive right into it. Hey, Ryan. Just give us a sense of that report.

Ryan Sweet:                      I think you summarized it right there. It was miserable. The CPI, the Consumer Price Index was up 1% month over month. That was stronger than we anticipated or the consensus. So the primary culprit was higher energy prices, particularly gasoline. A lot of that can be traced back to Russia's invasion of Ukraine. That caused global oil prices to spike and retail gasoline prices. We've talked about it on past podcasts. The national average, according to AAA, is at $5 per gallon. Unfortunately, we're going to go higher. I think we can talk about the outlook. We can talk about energy prices, because wholesale gasoline prices, which lead retail gasoline prices, which are going to lead the CPI for gasoline, point towards a national average of $5.50 over the next couple weeks. So a little bit more pain at the pump to come. But outside of-

Mark Zandi:                      $5.50 you said? I didn't know it was-

Ryan Sweet:                      That's based on wholesale.

Cris deRitis:                       Wow.

Mark Zandi:                      Okay, wow. All right.

Ryan Sweet:                      The trips to Wawa are getting more and more expensive.

Mark Zandi:                      Yeah. Right.

Cris deRitis:                       Going to have to walk.

Ryan Sweet:                      I know, but it's not just gas. It's food prices. They were up more than anticipated in May. So overall, the-

Mark Zandi:                      But that's also-

Cris deRitis:                       Energy related.

Mark Zandi:                      ... energy related, right? Diesel prices.

Ryan Sweet:                      And a very bad crop season in the US.

Mark Zandi:                      Oh really?

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      For what?

Ryan Sweet:                      Well, it depends. If we're playing the stats game, I got to hold onto my numbers.

Mark Zandi:                      Oh really? Somehow I missed that. So the grain prices are up a lot that are not related to Russia Ukraine, but... That's got to be partly related to that, but also to-

Ryan Sweet:                      It's partly related, yeah.

Cris deRitis:                       We've got weather issues, right? We have ongoing drought.

Ryan Sweet:                      Correct.

Cris deRitis:                       Then around the world, there are other issues all over.

Mark Zandi:                      That's true.

Ryan Sweet:                      There's been some trade agreements between a couple countries where they're sending wheat to them in exchange for fertilizer, and that's exacerbating the supply issues that are global now.

Mark Zandi:                      Okay, so the number was-

Cris deRitis:                       [inaudible 00:05:18]

Mark Zandi:                      There was a little technical issue here. We're all focused on the year over year growth and the Consumer Price Index. There's seasonally adjusted data and seasonally unadjusted data. If you do the year over year calculation, it's different. Do you want to explain that, Ryan, just this little technical matter? It's technical in the sense that, important in that, whether inflation was higher peaked in March or peaked now in May, or may have not peaked at all, but can you describe that issue for us?

Ryan Sweet:                      Yeah, no problem. So the BLS reports it as non-seasonally adjusted. That's in the report. That's what gets all the headlines in the press and on the news. That was 8.6% year over year. So if you don't adjust for these seasonal patterns, which it's pretty easy to identify normal price changes from month to month, if you adjust for it, which is seasonally adjusted, which we look at, that was 8.5%, but at least historically, when you look at the difference between year over year growth and non-seasonally adjusted versus seasonally adjusted, it's really small. This is also small. It's a 10th, but as your point, determines whether or not inflation's peaked already or we had a new four-year high in May.

Mark Zandi:                      Yeah, and your view is that we should be looking at the seasonally adjusted series, and year over year, that would be 8.5, which would [inaudible 00:06:47] below the March peak of 8.6.

Ryan Sweet:                      A little bit below.

Mark Zandi:                      Yeah, yeah. It's just-

Ryan Sweet:                      Yeah, we're moving in the right direction.

Cris deRitis:                       We're splitting some hairs here, right?

Mark Zandi:                      [inaudible 00:06:56] for the historical record, and if you read the New York Times or the press accounts, they're saying 8.6, new four year high, but you would say no.

Ryan Sweet:                      No, it's not.

Mark Zandi:                      That was March.

Ryan Sweet:                      Correct.

Mark Zandi:                      Of course now, given $5.50 a gallon, June could be a new high.

Cris deRitis:                       Temporary.

Ryan Sweet:                      Yeah, correct.

Mark Zandi:                      We're not quite there yet. Okay.

Ryan Sweet:                      Yeah, energy and food prices, and there's no sign that food prices are going to start to moderate any time soon, but the May gain is very, very broad-based. Very few components of the CPI fell month over month or even year over year. But energy really left its mark. You and I were chatting about even the core CPI, which strips out food and energy prices, which are volatile. Economists, we look at core CPI, because that's a good predictor of what underlying inflation is and where it's likely headed. That was up .6% month over month, identical to what we got in April, and year over year, it was seasonally adjusted, it was 6%.

Mark Zandi:                      Got it. You do this really great decomposition of the year over year growth into what's related to energy, what's related to supply chains and other factors. Can you walk us through that decomposition?

Ryan Sweet:                      Yeah, no problem. So this is decomposing year over year growth in the headline CPI. What we do for the supply chain components, we went through the bowels of the report and identified-

Mark Zandi:                      Well first, do energy. Energy [inaudible 00:08:22]

Ryan Sweet:                      All right, we'll do energy [inaudible 00:08:23]

Mark Zandi:                      Do energy first, and then go to the supply chain.

Ryan Sweet:                      So energy's contribution to year over year growth in the CPI was 2.8 percentage points in May. That's up from-

Mark Zandi:                      Did it...

Ryan Sweet:                      Go ahead.

Mark Zandi:                      No, go ahead. Go ahead. Finish. I'm sorry.

Ryan Sweet:                      Double check. Oh, it was up from 2.3 percentage points in April.

Mark Zandi:                      Okay. So 8.5% year over year increase. Of that, 2.8 percentage points was directly related to the higher energy prices, oil basically.

Ryan Sweet:                      Correct. Oil, gasoline, heating oil, things like that.

Mark Zandi:                      Yeah, but they all go back-

Ryan Sweet:                      All grouped together, yep.

Mark Zandi:                      Yeah, they all go back to... So if I take 8.5 and I subtract 2.8, what is that? That's three point... No, no, no. 5.7.

Ryan Sweet:                      5.7. correct.

Mark Zandi:                      5.7%. Okay. But that still doesn't do complete justice to the contribution to inflation of energy, because as we pointed out, it's led to higher diesel prices, which causes food prices to be higher, and it's also bleeding into things like airfares and other things.

Ryan Sweet:                      Yeah, because there's a very strong relationship between growth in jet fuel prices and growth in the CPI for airfares. So it's more expensive to fill up the plane, so they're going to charge you more.

Mark Zandi:                      Yeah, right. Yeah, it makes sense. So how much of the eight and a half percent is, let's call it the indirect effects of energy?

Ryan Sweet:                      All right. I can calculate that. I haven't done it yet.

Mark Zandi:                      Okay, but 2.8% is direct, it feels like, by my calculation, it feels like almost another point, not quite, but almost another point is related to the indirect effects of the higher... When I say indirect, not too far indirect. I got to move stuff from the farm to the store shelf. That costs diesel. That goes to the cost of diesel. So I do the calculations, it's about a point. Not quite a point, but let's go with a point. So we went from eight and a half down to 5.7. Take another point off, that's 4.7, okay? Then let's go to supply chains. That's next. What do you think the impact of that is on the CPI?

Ryan Sweet:                      So when you add it up, the bulk of the supply chain constraint component CPI is new and used vehicles, but also includes bedding, furniture, children's apparel, things that are being really affected by the supply chains. That's one-

Cris deRitis:                       Electronics.

Ryan Sweet:                      Electronics, right. One and a half percentage points in May.

Mark Zandi:                      One and a half. So that's-

Ryan Sweet:                      That's down. It was closer to two just a couple months ago, and you've seen that supply chain stress is has eased a little bit, so this is encouraging, but it was one and a half percentage points in May.

Mark Zandi:                      Okay. One thing that confused me a little bit is didn't used car prices rise in a month?

Cris deRitis:                       Yeah.

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      It had fallen for a couple months and we thought used car prices might have rolled over. We construct our own measure of used car prices based on actual transactions, and that looks like that continued to weaken in the month of May. It's up a lot year over year, but on a sequential basis, it looked like it declined. Any sense of that, why that happened? Is that just goes to seasonal adjustment and hedonics, or what is that? Do you know?

Ryan Sweet:                      It's hard to pinpoint, but the BLS, Bureau of Labor Statistics, alter their methodology for how they calculate vehicle prices in the CPI. So now it's transaction-based. So I don't know if there's just growing pains of transitioning to the new data, but that could be one thing to keep an eye on. I think vehicle prices are volatile from month to month, and this new methodology may be increasing volatilely.

Mark Zandi:                      Right. Okay. So if I take, you said 1.5 percentage points.

Ryan Sweet:                      Right.

Mark Zandi:                      If I take that out, that brings that down to, what, 3.2%, 3.2%.

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      Okay. Any other aspects of that decomposition that-

Ryan Sweet:                      We have the reopening component.

Mark Zandi:                      The reopening-

Ryan Sweet:                      These are things that are sensitive to reopening. So food away from home, for example, lodging away from home, airfares, and that added four tenths of a percentage point to year over year growth in May.

Mark Zandi:                      So that takes us down to 2.8%.

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      So that-

Cris deRitis:                       How long do you consider something a reopening? We've been reopening a while now.

Ryan Sweet:                      Yeah, that's a great question. If you look at air travel, for example, demand was still depressed, but it's picked up a lot recently. I think that's just more normalizing of consumers' behavior.

Cris deRitis:                       Okay, so until we get the TSA travel checkpoints, for example, back up and consistently.

Ryan Sweet:                      Yeah, I don't think it has to be all the way back up before we drop it.

Cris deRitis:                       [inaudible 00:13:31] levels.

Ryan Sweet:                      Because business travel is not going to recover soon, but leisure travel is.

Cris deRitis:                       Okay. Okay. So maybe through the summer, you would continue to say that we're still reopening.

Mark Zandi:                      Well, and also, this is year over year, so you're capturing stuff that's happened over the past year, the reopening is.

Ryan Sweet:                      Yeah, we can drop it once Mark's flying five days a week again.

Mark Zandi:                      Yeah, which feels like that's happening sooner rather than later. Doesn't it feel that way? My number of invitation I'm getting to speak at different functions has risen sharply here in the last few weeks, couple months.

Cris deRitis:                       Yeah.

Mark Zandi:                      You too, Cris?

Cris deRitis:                       Oh yeah. I was just at the SBFE Conference yesterday.

Mark Zandi:                      SBFE?

Cris deRitis:                       That's the Small Business Financial Exchange.

Mark Zandi:                      Oh yeah, SBFE.

Cris deRitis:                       I'll give them a shout-out. We have a super fan there. I want to shout out to Mike Farley. So yeah.

Mark Zandi:                      Oh, you're sucking up to Mike Farley.

Cris deRitis:                       He really listens to us religiously and had a lot of commentary.

Mark Zandi:                      It is funny. Now you're right, I was at an event in New York the beginning of this week, a rating agency event. Actually, it was Moody's One, it was rating agency Moody's Analytics, everyone was kind of there for... I think it was the first... They told me it was the first conference that involved everybody. I heard a number of people come up and say they really enjoy the podcast. That's really great to hear. Yeah.

                                             Okay, so where were we? Oh, so we're down to 2.8, 2.8, which is in spitting distance of the Federal Reserve's target. I would say for CPI, Consumer Price Index, that the top end of that target would be two and a half percent, right?

Ryan Sweet:                      Correct.

Mark Zandi:                      Would you agree with that?

Ryan Sweet:                      I agree.

Mark Zandi:                      Okay, so from that vantage point, from that decomposition, it feels like what you're intimating is that if this hyperinflation we're experiencing now is largely, if not entirely due to the ongoing effects of the pandemic, supply chain issues, reopening, and most important, most immediately is the Russian invasion of Ukraine and its impact on commodity markets, particularly the energy market. Is that fair to say?

Ryan Sweet:                      Yeah, just don't say hyperinflation. High inflation.

Mark Zandi:                      Hyperinflation compared to where we were a year ago.

Ryan Sweet:                      Yeah, yeah.

Mark Zandi:                      But it's not hyperinflation of the Weimar Republic sense of the word.

Ryan Sweet:                      I'm already getting client questions-

Mark Zandi:                      Oh, is that right?

Ryan Sweet:                      ... about the prospect of hyperinflation in the US. Now I always tell them it's not going to happen in the US. Now they're going to be like, "Zandi said hyperinflation."

Cris deRitis:                       Hyperinflation. That's it.

Mark Zandi:                      Oh, I see. Okay. Yeah, okay.

Cris deRitis:                       Why is it in the baseline?

Mark Zandi:                      Why is it in the baseline? Okay. Yeah, fair enough. Okay, I'll choose my words carefully. It's very uncomfortably high inflation, painfully high. Painfully high.

Ryan Sweet:                      That's perfect. Painfully high is good.

Mark Zandi:                      Painfully high inflation, particularly for the average American, right? Because you do that great calculation of what inflation means for the spending, right? You want to give the listener a sense of that?

Ryan Sweet:                      Yeah, so having inflation up 8.5%, seasonally adjusted year over year is costing the average household $460.20 per month to buy the same basket of goods this year as they did last year.

Mark Zandi:                      Yeah, it takes to buy the same goods and services of the typical American household spent last year, they'd have to spend $460 more to... I botched that. So let me say it again. For the typical American household, they have to spend $460 a month more to buy the same goods and services that they were buying this time last year.

Ryan Sweet:                      Correct.

Mark Zandi:                      Right. Wow. That's a lot of money, and the typical American household makes what in a typical year? 70K, something like that? A little less than 70k?

Ryan Sweet:                      Chris might know off the top of his head, but I thought-

Cris deRitis:                       That's like 65, right?

Ryan Sweet:                      Yeah, between 60 and 70.

Mark Zandi:                      I think it's more than that.

Ryan Sweet:                      Is it?

Mark Zandi:                      Yeah, yeah, yeah.

Ryan Sweet:                      I think it depends which measure, right?

Mark Zandi:                      Well, it sounds like we should have a bet on this one, which I can win, finally, if we bet on this on. I think it's like 68 and a half K or something. But anyway, Ryan will tell us.

Ryan Sweet:                      Nominal dollars.

Mark Zandi:                      Nominal dollars, nominal dollars. Okay. So given this decomposition, it sounds like, it feels like what we're saying is that the number one and two issues behind this high inflation is the pandemic and the Russian invasion. Is that fair to say?

Ryan Sweet:                      Yes, I think that's very fair.

Mark Zandi:                      Would you agree with that, Cris?

Cris deRitis:                       Yeah, I would stress though, if we're talking energy, prices were up before the invasion, right? So definitely the pandemic-

Mark Zandi:                      Well, they were anticipating the invasion.

Cris deRitis:                       Well, they were already on the rise, right? The pandemic, reopening-

Mark Zandi:                      No, I don't think so.

Cris deRitis:                       What?

Mark Zandi:                      I don't think so. Oil prices were headed south. They weren't headed north.

Cris deRitis:                       From last year?

Mark Zandi:                      Yeah, yeah, go back to the fall of last year. Yeah. Go back before... This is a factual point.

Cris deRitis:                       Yeah, yeah, but they were certainly up from a year ago, right?

Mark Zandi:                      Oh yeah. No, no, no doubt, but they were starting to come back in.

Cris deRitis:                       It's not as though they were...

Mark Zandi:                      It felt like they were headed, they were, what? I don't know. I can't remember. $75, $80 a barrel, and they didn't feel like they were going higher. It felt like they were going lower the back end of last year. It probably would have gone lower because of the Chinese shutdown, right? Because...

Cris deRitis:                       It's a weakness globally.

Mark Zandi:                      Yeah, a weakness in demand.

Ryan Sweet:                      So West Texas Intermediate peaked in October 2021 at $85 a barrel and started falling.

Mark Zandi:                      Yeah, exactly.

Ryan Sweet:                      Then it bottomed out by mid December at $70.

Mark Zandi:                      Yeah, perfect.

Ryan Sweet:                      And then resumed rising.

Mark Zandi:                      That's right.

Ryan Sweet:                      And you know where we are today.

Mark Zandi:                      It started rising because people started anticipating... When did Russia invade? It was February or something.

Ryan Sweet:                      February.

Cris deRitis:                       Late February.

Mark Zandi:                      But if you go back and look at the press accounts, it was already on the radar screen in December. People were starting to price it in. So I would proffer that the prices would be lower, $70, 75, which it wasn't too far from our equilibrium price, what we think the price should be if you don't have these wacko things going on in the world, consistent with the marginal cost of producing the marginal barrel of oil, which is in the fracking fields of the US, and getting that oil into the global marketplace. Okay.

Cris deRitis:                       If we're talking year over year, and we've been talking year over year inflation, the price of oil was already much higher than it was a year ago by that point, right?

Mark Zandi:                      Okay. Fair enough. All right. I'm just saying we'd have been headed south as opposed to headed north on oil, but nonetheless, yeah.

Cris deRitis:                       Yeah, yeah. I'm not denying the Russian invasion had a huge impact.

Mark Zandi:                      So is it fair to then say that the inflation we're observing now is largely due to the supply side disruptions to the economy as opposed to demand side effects? What would you say? It feels like it, right?

Cris deRitis:                       Yeah.

Mark Zandi:                      These are supply side issues, not demand side issues, largely.

Ryan Sweet:                      Yeah, I would agree that the majority, but there is some demand pull inflation, yeah.

Mark Zandi:                      Yeah, I would say the demand pull inflation is most obvious in housing, in the rents, the home owners equivalent rent, which is another aspect of this high inflation, which that's why, in my view, we're not at two and a half. We're at... What'd we calculate? 3.2. That is the delta largely related to the acceleration in rent growth, which is I guess supply and demand, right?

Ryan Sweet:                      Yeah.

Cris deRitis:                       Yeah.

Ryan Sweet:                      Yeah, we didn't build enough homes or apartments for the past decade.

Mark Zandi:                      Right, right. We have an affordable housing shortage, vacancy rates across the housing stock are pretty close to record lows, considering both for rent and for sale. That goes to very weak building, home building since the financial crisis and the housing bust, but it also goes to some significant, I'd say recently increasing demand, right?

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      Yeah. Particularly-

Ryan Sweet:                      Yeah, you saw it in the CPI.

Mark Zandi:                      Although you could argue that's reopening effects too, somehow, in part, right? Because you had all these millennials that doubled up or didn't start households during the teeth of the pandemic, and then have most recently. So that surge in demand, particularly for rental properties for rent, it then conflates with the lack of supply. Then that adds to the rent growth that we're observing, right? The very strong double-digit rent growth we're observing right now.

Ryan Sweet:                      Yeah, millennials, a large number of them, 40 million of them are moving into their prime age first-time home buyer, but affordability is so low that they're getting pushed back into rental markets, and that's driving up tenant rents.

Mark Zandi:                      Yeah. Okay. Now there's a number of other... So we say mostly supply side problems related to the pandemic and Russian invasion, some demand side issues, most obviously with regard to rents and housing costs. You mentioned a little bit of that in airfares. We are seeing some of that. The flip of that is, though, we are seeing less demand for goods. Inventories have built there, and we're starting to see some price weakness for products, goods products that are now in oversupply, I think. Weren't there declines in the price of household furnishings? Or no, it was household, not furnishings.

Cris deRitis:                       [inaudible 00:23:19]

Mark Zandi:                      Household goods like cleaning supplies and that kind of thing.

Ryan Sweet:                      Right.

Mark Zandi:                      Okay. So we are starting to see, because of this switch in demand from buying stuff to buying services, travel is the most obvious, restaurants, eating out. That's having some impact on relative prices that-

Ryan Sweet:                      Yeah, there was also year over year declines. Not a lot of them, but there were some in cell phones.

Mark Zandi:                      That always happens though, doesn't it? That's technology.

Ryan Sweet:                      I can never figure that one out, but electronics.

Mark Zandi:                      That's hedonics, isn't it? I mean-

Cris deRitis:                       TVs. TVs are down.

Ryan Sweet:                      TVs are always down, yeah.

Cris deRitis:                       Yeah, I think so.

Mark Zandi:                      Hedonics meaning quality adjustments.

Cris deRitis:                       The quality, yeah.

Mark Zandi:                      The quality, even if the price stays the same or goes up, but if you have these improvements in the quality of the TV or any consumer electronics, the price will decline. Yeah, okay. But there's other explanations for the higher inflation that are out there. I'm just curious. Maybe I'll throw a few of them out there and just get your sense of it. One is around energy markets, energy prices. We keep going back to the Russian invasion of Ukraine, because that feels like that's pretty obvious, but do you hear this argument that it's regulation of the energy sector that's at work here? That that's the problem that-

Ryan Sweet:                      In the US. Energy regulation?

Mark Zandi:                      No, they're saying that's the cause for higher global oil prices, energy.

Cris deRitis:                       That's generally, because of the movement towards green energy. We've decimated the fossil fuel industry, right? That's the-

Mark Zandi:                      That's the argument.

Cris deRitis:                       ... theory, yeah.

Mark Zandi:                      And it goes to why US producers aren't ramping up production more quickly, that they can't, that they can't get a permit, environmental regulation, whatever it is. People argue this and don't give you a real sense of what regulation they're talking about. It's just regulation. Any credence to that argument?

Ryan Sweet:                      [inaudible 00:25:22]

Cris deRitis:                       I don't think there's any credence in terms of an actual... To your point, I don't think you can point to a specific action that's been taken over the last couple of years here that says, "Aha, this driller wanted to drill here, but was prevented from doing so, and therefore, we have this issue." I think the argument rests on the sentiment that perhaps the administration..." This is the theory. The administration's putting forward this idea that it's just not going to be profitable. There are going to be regulations coming in the future that will make it prohibitive to continue as a fossil fuel extractor, and therefore no one's going to take the risk to invest a lot up front here if the market's going to go away later on. That's the idea. Again, I think it's more about the sentiment rather than an actual action that's been taken here.

Mark Zandi:                      Yeah. I think there is an argument to be made that this move towards renewables away from fossil fuel is depressing investment in the exploration and development of fossil fuel. That is playing a role, but I don't think it's playing any role in the spike in oil and energy prices we're observing now. Nothing has changed on the regulatory front that would say, hey, we should go from where were we before all this? $80 a barrel, 75, 80?

Ryan Sweet:                      80.

Mark Zandi:                      To 120, that's not anything related to this move away from fossil fuel. That's a trend that's been ongoing. The other thing I'd point out is that go take a look at oil, natural gas, gasoline prices, diesel prices everywhere else in the world. They're up as much, if not more in other parts of the world. So how can US energy regulation be the cause of that? It doesn't make any sense.

Ryan Sweet:                      I think you just do a simple event analysis. The big changes in global oil prices, there's some news about Russia's invasion of Ukraine [inaudible 00:27:32], or the European Union banning Russian oil imports. That moves oil markets.

Mark Zandi:                      The other thing I'd say is that investment is picking up. If you look at rig counts, they steadily rise, and it feels like there's some physical limitations on how quickly you can actually put more rigs into the ground, because every week, I look at the Baker Hughes numbers, and they rise about the same amount as they did the previous week. If you go back in history and you take a look, it's only so fast they can ramp it up. There's literally physical limitations on doing it. I would say there may be more now because of the shakeout that occurred in the oil, natural gas industries back a few years ago in the late... It was 2015, '16, '17. If you recall, there was a big shakeout. We lost some energy companies.

Ryan Sweet:                      I'm sure they're not immune to the labor supply issues and the supply chain problems.

Mark Zandi:                      Yeah, exactly. Yeah, and also getting equipment because of the global supply chain issues you point out. Yeah, yeah. Same kind of deal.

Cris deRitis:                       I read an interesting piece this morning that the real issue is not the drilling, it's the refining, that we have really restricted refining capacities. They're not going to drill necessarily if the refinery's not able to process it. Refining, building a new refinery is really capital intensive with a very long time horizon. So we might be stuck for a while, even if we can extract more barrels of oil, if we don't have the refining capacity-

Mark Zandi:                      The capacity to refine. Yeah.

Cris deRitis:                       Yeah.

Ryan Sweet:                      Is that why you get up at 5:00 in the morning, to do all your reading?

Cris deRitis:                       I read through the night.

Ryan Sweet:                      Do you really get up at 5:00 every morning?

Mark Zandi:                      Did he say that? Did he say he got up at 5:00 in the morning? He didn't say that.

Cris deRitis:                       No, I say it.

Ryan Sweet:                      He sent an email at 5:25.

Mark Zandi:                      Oh. Oh, he did?

Cris deRitis:                       Well, listen here, Mr. 3:00 AM.

Ryan Sweet:                      Oh, I'm a night person, not a morning person.

Mark Zandi:                      Well, I was up at 5:25. No, only kidding. 6:25.

Cris deRitis:                       Yeah, I was going to say.

Mark Zandi:                      I got my Wawa coffee. That's 6:25. Fortunately, they're open 24/7, so that's another good thing about Wawa. What was I going to add?

Cris deRitis:                       So if this is the case, inflation is going to persist, right? If these bottlenecks are truly difficult to overcome, the demand remains... Unless we get demand down.

Mark Zandi:                      Well, and demand is coming down.

Cris deRitis:                       Do you think that supply is going to ramp up?

Ryan Sweet:                      It's coming down.

Cris deRitis:                       Demand's coming down, but it's not coming down fast enough.

Ryan Sweet:                      Not quickly enough, but yeah, no, not fast enough.

Mark Zandi:                      Yeah, no. It means it's going to take a while to get... All I'm counting on, all I would like to see is for prices to stop rising, because once they stop rising, then inflation is going to moderate very, very quickly. If we get prices coming in, which I don't expect until we move into next year, particularly for oil prices, refined product, crack spreads might... So the difference between refined product and the underlying oil may cap out because of the lack of capacity, but that's going to improve too. The capacity is building. At this point, I'm just rooting for stable oil. By the way, natural gas prices are up a lot too, but that goes to Russia invasion of Ukraine, because Europe, oil supplies are getting disrupted. They get all their natural gas from Russia. They can't get the gas. Therefore, the price is up.

                                             Now liquified natural gas from the US is now being shipped over to Europe because of the price arbitrage. They can get so much... The LNG guys, the natural gas companies can get so much more for their gas in Europe than they can here. Then it makes sense to liquefy it, put it on a ship, sending over to Europe, and then use it there. So the price of natural gas is $10 per million BT2, more than double what it was back a year ago. So the Russian invasion is affecting energy prices in lots of different ways.

                                             Okay. One other explanation I just want to throw out there and see what your reaction is, corporate greed. That's the other thing.

Ryan Sweet:                      I knew you were going to bring this up.

Mark Zandi:                      Yeah. What do you think? The argument is businesses, particularly large corporations with market power, are jacking up prices, gouging to take advantage of the situation, and that's significantly contributing to the high inflation we're observing now. What do you think of that, Ryan?

Ryan Sweet:                      No. No. That's not happening. It's widespread. This inflation is not corporate greed. It's economics. It's supply and demand.

Mark Zandi:                      Why? What do you point to to say that?

Ryan Sweet:                      It's supply and demand.

Mark Zandi:                      Okay, but prove me wrong. I say it's gouging.

Ryan Sweet:                      There's strong demand. There's limited supply.

Cris deRitis:                       There's no concentration in any industry to put to that.

Ryan Sweet:                      Right. Yeah, we don't have a monopoly in...

Mark Zandi:                      Well, meat packing, energy, the administration-

Ryan Sweet:                      You think they're monopolies?

Mark Zandi:                      Well-

Cris deRitis:                       Oligopolies.

Mark Zandi:                      Yeah, maybe not straight up monopolies, but no, but there's, I don't know, three meat packers that account for the bulk of the processed meat in the country. I'm picking on them, because that's the poster child for this idea. Energy companies are next on the list. No?

Ryan Sweet:                      No.

Mark Zandi:                      What would you point to to say, "Hey, that doesn't make any sense to me. It's not gouging."?

Ryan Sweet:                      Well, first, corporate profit margins have been pretty stable. They actually started to come down a little bit for small businesses.

Mark Zandi:                      Okay, that was exactly where I was going. Yeah. Explain that. So why is that important in regard to this question?

Ryan Sweet:                      If it was corporate greed, you'd see profit margins really start to increase noticeably, because they're passing on more and more of the higher input costs onto you and I, but they've been pretty much... They bounce around from quarter to quarter.

Mark Zandi:                      They're coming in.

Ryan Sweet:                      They're coming in. Yeah, when you break it down by-

Mark Zandi:                      Declining.

Ryan Sweet:                      ... firm size, small businesses, that's really coming in. Large businesses have compressed as well.

Mark Zandi:                      Yeah. Then profit margin meaning the price the company, the business charges, the industry charges and the cost of producing whatever it is that they're producing, labor costs, material costs, and everything else. That's the profit margin. So if they were gouging, if they were taking advantage, that margin should be rising, right?

Ryan Sweet:                      Correct. A lot.

Mark Zandi:                      They should be raising prices a lot faster than the cost of whatever it is it takes to produce it. That is not happening. The direct opposite is happening. But having said that, I do think it is important that law makers, the administration, Congress put a bright, shiny light on business pricing practices, because that's in their agreement. They got to keep everyone honest, making sure that no one does take advantage of the situation. So when the president gives a talk about meat packing, it comes up in different ways. I don't think he's given a specific speech about it, but in press conferences and other things, he mentions it. I have no problem with that. It keeps everyone honest, making-

Ryan Sweet:                      Yeah. No, I agree. I'm not saying that gouging doesn't happen. Gouging, you can see clear evidence of gouging after natural disasters, like gasoline stations around the affected area, gasoline will go through the roof. There's some gouging there, but in aggregate, I don't think gouging is the primary reason we have inflation.

Mark Zandi:                      Yeah, okay. Cris, you agree, disagree? Any color there you want to add?

Cris deRitis:                       Yeah, I agree.

Mark Zandi:                      You agree?

Cris deRitis:                       If you think about gas or oil, it's an international market. It's set globally. Yeah, you have some large companies, but still, they're not large enough to set the price of a barrel of oil globally.

Mark Zandi:                      Yeah, I agree. Okay, here's another one. Chris, I'll direct this to you first. Money supply. Money supply has taken off here. I saw an eye roll. His eyes. Maybe I should go... I'll go to Cris first, because he'll be more objective about his anger.

Cris deRitis:                       Ryan's will be more fun.

Mark Zandi:                      Yeah. So historically, way back when, economists, central bankers would look at the growth of the money supply as a gauge of where inflation is headed. So the intuition is if the Central Bank, the Fed is providing a lot of liquidity to the system, providing a lot of cash, money supply to the system, like they did during the pandemic, they stepped on the accelerator and pumped out a lot of liquidity, then that ultimately leads to inflation, or conversely, if they pull liquidity, then that causes inflation to slow. That's the intuition. So Cris, what do you think of that argument here?

Cris deRitis:                       Well, we know that inflation is always a monetary phenomenon, right?

Mark Zandi:                      Right. Okay.

Cris deRitis:                       No. I think certainly money... So that's the monetarist view, right? They distill it just down to this one argument, nothing else matters. Demand, supply, forget it. It's just the money supply. I think that's reductionist. I think money supply certainly has an influence. Don't get me wrong, but I don't think it's the primary drive. If you look historically and try to correlate shifts in money supply and then subsequent inflation, it's pretty weak. You can find periods where it's relatively strong, and then other periods where money supply went up, and inflation did nothing, right?

Mark Zandi:                      Right.

Cris deRitis:                       So I don't see it as the primary factor affecting inflation.

Mark Zandi:                      It's kind of a side show, it feels like to me. It's not a fundamental explanation for what's going on, right?

Cris deRitis:                       That's right.

Mark Zandi:                      It's kind of a result of, not a cause of what's going on.

Ryan Sweet:                      We had a similar-

Cris deRitis:                       Well, if you take it to the extreme, sure, right?

Mark Zandi:                      Yeah, to the extreme.

Cris deRitis:                       You can always find examples where that's the case.

Mark Zandi:                      The Weimar Republic, as I mentioned earlier.

Cris deRitis:                       Exactly.

Mark Zandi:                      Because in that case, the German government was fighting a war, didn't want to pay for it, so they pumped out a lot of, I guess, marks. I think they were marks at the time, to pay for the war. That just created the hyperinflation of that period. So that would be a case where money supply directly caused the inflation that was observed, but that's not what's going on here.

Cris deRitis:                       Right. We're not at that level though, right?

Mark Zandi:                      Yeah.

Cris deRitis:                       We're far from that situation. So does it have an impact? Certainly. Yeah, but I don't see it as a primary driver of the inflation that we are experiencing today.

Ryan Sweet:                      We had the same debate after the financial crisis, because the money supply spiked after the financial crisis.

Mark Zandi:                      Oh, good point.

Ryan Sweet:                      That didn't lead to high inflation. The other thing that gets lost in the discussion is the velocity of money, so how quickly money's changing hands. That's very, very depressed. I think it's the lowest since the 1980s. It doesn't look like it mean reverts. So unless the velocity of money picks up, the money supply can keep growing without generating inflation.

Mark Zandi:                      Yeah. The way I intuitively think about it is that money supply ultimately has to affect credit growth. So the banking system, financial system has to take that "money" provided by the fed and turn that into loans and provide that to businesses and households. That generates economic activity, which at some point could push you back past full employment, which creates wages and price pressures, and then ultimately inflation. That's why if you go back out of the financial crisis, that chain was completely short-circuited. The fed stepped on the accelerator, created money, but didn't create any credit, because we were all de-leveraging. Households were being reduced debt. The banking system was forced to capitalize at a higher level. So you didn't get the credit. Therefore, you didn't get the growth. It took us a long time to get back to full employment.

                                             So money, ultimately, inflation is a monetary phenomena, but there's a lot of chains along the way. It's not money and the immaculate conception. Inflation is money and then all the chain of events I just described. So I don't think you can point to money supply as a reasonably useful explanation for what's going on right now.

Ryan Sweet:                      Especially given a lot of that money is in checking accounts [inaudible 00:40:13]

Mark Zandi:                      Yeah, that goes to your point about velocity. It's just sitting there. It's not doing anything. I'm sure it's going to help support consumer spending in dark times. Those dark times just seem to be coming, so hopefully consumers will use that.

Ryan Sweet:                      Ooh, did you change your odds?

Mark Zandi:                      No, but [inaudible 00:40:31]

Ryan Sweet:                      I thought you were wavering.

Mark Zandi:                      ... [inaudible 00:40:34] of recession, that's going to be pretty hairy. Let me ask this. Are there any other explanations for the high inflation that we're suffering now that you've heard supply... Obviously supply shocks, pandemic, Russian invasion, demand, rent, household-

Cris deRitis:                       Wages.

Mark Zandi:                      Oh yeah.

Ryan Sweet:                      Wages.

Mark Zandi:                      That's another good one.

Cris deRitis:                       [inaudible 00:40:57]

Mark Zandi:                      Yeah, that's another really good one. So the idea is that we've seen this big acceleration in wage growth. It hasn't kept pace with inflation in most cases, but that that increase in wage growth is now causing or inducing businesses to raise prices more aggressively to raise inflation. What do you think of that argument as an explanation for what's going on?

Cris deRitis:                       Well, Ryan follows this one closely, so I'll let him chime in.

Ryan Sweet:                      Yeah. Well, the causation goes the other way. Right now is that high inflation is causing changes in wages. So unless that causal relationship flips, then I don't think wages are growing fast enough to be generating stronger consumer spending. In fact, what matters more for spending is not wages, it's real disposable income, and that's actually fallen. So I think the counter argument is that, yeah, the concerns about a wage price spiral. We have to worry about it, but there's no evidence so far that that wage price spiral, where higher wages leads to higher prices, and we just keep going around and around, has set in yet.

Mark Zandi:                      Right. Okay, so you're saying, okay, we've seen this surge in inflation related to all the things we discussed, mostly supply, a little bit of demand. That's affecting wage growth. Workers, particularly low-wage workers where the wage growth has been strongest and where the labor supply disruptions related to the pandemic most significant have been demanding and getting higher wage growth, but it doesn't appear that that wage growth is now translating into higher prices and inflation.

Ryan Sweet:                      Correct.

Mark Zandi:                      In most cases. There might be some industries, businesses where that's the case, but it doesn't feel like that's happening in a macro economic sense. You say that based on... I know you do a fair amount of econometric work here to try to disentangle this so called Granger Causality test, that kind of thing, and you're not binding. In those tests, the wage is driving prices. It's really prices driving wages, at least so far, which if the causality did start to become more self-reinforcing, that would be a big problem. That means this inflation is going to be more persistent, but you have not observed that yet.

Ryan Sweet:                      No, not yet, and the measure of wages that I use is the Employment Cost Index. That's the best measure of wages.

Mark Zandi:                      Right.

Ryan Sweet:                      Not averaged out or anything.

Mark Zandi:                      Because it controls for all the mix-

Ryan Sweet:                      Yeah, the composition of jobs, things like that. So average earnings gets skewed based on calendar quirks and also the mix of jobs. It favors low-paying jobs, then average hour earnings are going to be depressed. So the Employment Cost Index adjusts for that. So that's why I think that's the best measure.

Mark Zandi:                      Okay. I was going to say one other thing about that. Oh actually, I was in Washington for a meeting of the Economic Advisors Congressional Budget Office. There was a session. I don't think I'm violating any rules here. No, it's in the public domain. One of the participants nicely showed that real wages are declining except for folks in the bottom part of the income distribution. So if you go look at the folks in the bottom 20, I think even the bottom 40% of the distribution, I might be stretching it. Certainly the bottom 20, wage growth has out-paced inflation, which is very obviously unusual in the last 35 years because of the skewing of the income distribution. Low-wage workers have been hit hard, but in recent... Actually, even before the pandemic, wage growth for low-wage workers had caught up to the wage growth for high-wage workers.

                                             Since the pandemic, it's like a switch went on, and I think in part because of the character of the pandemic, it hit industries that employ a lot of low-wage workers. Of course, immigration has been significantly curtailed, and the trade wars and everything else, I think put low-wage workers in a better position negotiating with their employers, and they've gotten bigger pay increases. So I thought that was quite interesting observation. Okay.

Ryan Sweet:                      The other thing that came up recently is I had a question of will... He made it out like Janet Yellen, the treasury secretary, came out and said that the Biden administration is thinking about recalibrating the tariffs that Trump imposed on China and other countries. Is that going to help bring down inflation? I thought it was going to be on the margin.

Mark Zandi:                      Recalibrating meaning reduce or eliminate the Trump tariffs?

Ryan Sweet:                      Yeah, I don't know if she said eliminate, but just maybe tweak them. Yeah.

Mark Zandi:                      Tweak means reduce though.

Ryan Sweet:                      Yeah, I think they're going to reduce them, but I don't know if they're going to remove them.

Mark Zandi:                      Yeah. I think not on all products, right?

Ryan Sweet:                      Right.

Mark Zandi:                      Some things they're going to keep in place and some they'll reduce or eliminate. You're saying on the margin, that might help, but it's on the margin.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Well, that's true. I think the estimate we came up with is that the Trump tariffs added seven tenths of a percentage point to price levels. So if you take that out, you got rid of all of them all at once, then that would reduce inflation by seven tenths of a percentage point, which, by the way, would be enough to get us from 3.2 to 2.5. I'm just saying.

Ryan Sweet:                      There you go.

Mark Zandi:                      I'm just saying. All right. 3.2 [inaudible 00:46:37]-

Cris deRitis:                       If we didn't have to use any energy.

Mark Zandi:                      ... that's where we landed after [inaudible 00:46:39] everything, right?

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      Okay. All right. Well, this takes us to the outlook, because we've now, at least to our satisfaction, I'm sure not to many other people's satisfaction, we've explained why inflation is so high. Based on that diagnosis, if you believe that the worst of the fallout from the Russian invasion is at hand, meaning let's take oil, it's sitting at $120 per barrel for WTI, a little bit more than that for Brent, that that's kind of sort of the peak in price, and if you believe that the pandemic effects are fading, not that the pandemic's going to go away. We're going to have more waves, but that each wave is going to be less disruptive than the one before it. So supply chain issues start to iron themselves out. By the way, it feels like that is happening. I'm curious what you think about that.

                                             But if you buy into those two things, and third, that the fed can calibrate monetary policy in a way that slows the growth in the economy, because it's been growing very strongly, so that it doesn't blow past full employment and those wage price problems we were just talking about manifest, then it feels like inflation should moderate here going forward. We could talk first about that narrative I just... What do you think about that narrative I just laid out for you? Then after that, we can talk about the timing of all this. But what do you think about that? That's kind of our baseline view, our forecast, our most likely scenario makes those assumptions, and you can see inflation moderating, that inflation, now I hesitate to say it's peaked, but it's peaking. It really does depend on oil prices when it actually does peak, but it is peaking, because oil prices, we're assuming that will continue to move higher here in a consistent way, that inflation will moderate going forward. What do you think of that outlook? Cris, I'll turn to you first.

Cris deRitis:                       I like the general assessment. I think in the short-term though, I don't think we've peaked. I think the summer is going to continue to present a lot of inflation. So we may get a higher number here. I think oil prices are going to remain high. They may even go higher for a while. But as we get past this summer, past the summer driving season, I think then we might start to see some of that moderation you're talking about. So it's just a question of the timing. Maybe another quarter versus immediate decline, but I think you're right in terms of all the other factors. I do believe supply chains are improving every day, maybe not at the speed we'd like, but I think they're getting better. I think China has shifted on its policies around zero COVID, so that should certainly help to ease things a bit here. I am worried about the food piece of this. I know that for US inflation, it's actually not a huge component, but I worry that that, and for other countries certainly, could keep inflation persistently high.

Ryan Sweet:                      Yeah, I've been watching wheat prices. So you want a scary number?

Mark Zandi:                      Yeah.

Cris deRitis:                       What's that?

Ryan Sweet:                      74%. That is the share of wheat crop that has been harvested in North Dakota, which is a big wheat producing state. Normally at this time, it's at or slightly below 100%. So that gets back-

Mark Zandi:                      What is that? 74% is what?

Ryan Sweet:                      The share of the planned wheat harvest that has been produced.

Mark Zandi:                      Oh.

Ryan Sweet:                      So we're well below where we should be.

Mark Zandi:                      Is that because of drought?

Ryan Sweet:                      It's weather conditions. It's I think a whole host of things.

Mark Zandi:                      I haven't looked at wheat prices recently. Are they moving up? Have you looked?

Ryan Sweet:                      So if you look at the SPOT price, I look at it every day, it's north of 1,000.

Mark Zandi:                      Okay. Give me context.

Ryan Sweet:                      Okay, I got to go back. Let me look it up.

Mark Zandi:                      Okay, you look it up. All right. But before you look it up, I want to get your buy-in on the path or the explanation, what's the word? The narrative behind our-

Cris deRitis:                       The outlook, yeah.

Mark Zandi:                      The outlook for the inflation outlook.

Ryan Sweet:                      Oh, I'm on board.

Mark Zandi:                      You're on board.

Ryan Sweet:                      Yeah, I think the contours of our forecasts are broadly correct. I just I'm worried that the deceleration is going to be slower than what we're anticipating, because goods disinflation isn't as strong as I was hoping it would be at this point. To Cris's argument, that services inflation this summer is going to be really picking up.

Mark Zandi:                      Let's talk about that for a second, because I'm confused about that. We had Gene Seroka on the... He's the executive director of LA Ports, and he made the point that all the warehouses in Southern California, and Southern California has, according to Gene, I think this conforms with my understanding, that there's more warehouse space there than anywhere on the planet, and that those warehouses are pretty much packed to the gills, right? With stuff, even despite the supply chain issues. So that feels like that's going to put... You can hear Target and Walmart and other retailers talking about inventories, overladen in inventory. Feels like we should be seeing some price cutting here or discounting as we move certainly into the Christmas buying season. Wouldn't you expect that?

Ryan Sweet:                      [inaudible 00:52:17]

Cris deRitis:                       It is, but isn't that in goods that are a small component of the basket, right? Okay, so we already bought all the furniture we need, right? Okay, prices will come down there, but that's not a big driver of inflation, right?

Mark Zandi:                      Furniture, clothing, household goods, household appliances, power washers.

Cris deRitis:                       I know in the Zandi budget, that's a big part of the basket.

Mark Zandi:                      Consumer electronics. Yeah, it's a big part of the basket here. Yeah.

Cris deRitis:                       But for others-

Ryan Sweet:                      The Zandi household's behind inflation.

Mark Zandi:                      But going back to Ryan's point why about the price declines, that feels like that's got to be out there, right?

Ryan Sweet:                      It's coming. It's coming.

Mark Zandi:                      Yeah, even on vehicles, come on, it's got to be... There's the supply chain issues I think have been more serious and it's going to take a little longer to work through them, to get global production up, but that feels like that's also going to happen, although maybe the Russian invasion is having an impact there too, because I think it's affecting equipment-related supplies to Europe or Germany where product a lot of cars.

Cris deRitis:                       Certain components, like wiring harnesses.

Mark Zandi:                      Yeah.

Ryan Sweet:                      All right, so wheat prices are $1,085 per bushel. The lowest in the past year was $640.

Mark Zandi:                      Before Russia's invasion.

Ryan Sweet:                      The invasion.

Mark Zandi:                      640.

Ryan Sweet:                      640. Now we're at-

Mark Zandi:                      What was the peak since the Russian invasion?

Ryan Sweet:                      1,285.

Mark Zandi:                      Okay. Okay. Is it moving higher now?

Ryan Sweet:                      It's kind of leveled off recently.

Mark Zandi:                      Okay. All right. Well, we got to watch that carefully. Yeah, we'll watch that very carefully.

Ryan Sweet:                      But still elevated.

Mark Zandi:                      Yeah. Well, back to goods for a second, lumber prices, they continue to move sharply lower, aren't they?

Cris deRitis:                       Yeah, yeah.

Ryan Sweet:                      Yeah, south of $600 now [inaudible 00:54:09]

Mark Zandi:                      And that was the poster child for the supply chain disruptions a year ago, right?

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      They were at $1,600 per 1,000-

Cris deRitis:                       Yeah, per 1,000 square.

Mark Zandi:                      Board square feet.

Cris deRitis:                       Yeah.

Mark Zandi:                      So now we're down to what? 600? Something like that?

Ryan Sweet:                      Below.

Cris deRitis:                       Below 600.

Mark Zandi:                      Below that. Yeah.

Ryan Sweet:                      I think on Friday, it was 585 or somewhere around there.

Mark Zandi:                      Okay, so that's a good sign. Yeah. Hey, I think the three key assumptions that are driving the outlook, the pandemic, feels like we feel pretty confident about that one. You can't be confident about any of this stuff, but more confident that the pandemic is fading and these supply chain disruptions and we're going to start seeing some price weakness, if not outright declines on some of these goods prices.

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      On the fed policy, which we're going to come to in a few minutes, because I want to talk about what this all means for monetary policy, I think we feel pretty good about that. The one that I'm most concerned about, and Chris, you kind of went there in your comments, is have we seen the worst of the economic fallout from the Russian invasion? So here's my question to you. The reason why oil prices recently jumped, it felt like we had seen the worst of the run-up in oil prices when the US sanctioned Russian oil, and then prices seemed to be coming back in. They were back below $100 a barrel there not too long ago. But then the European Union came along and said, "We're going to also sanction Russian oil," and that's even more serious than the US doing it, because Europeans buy a lot more oil from Russia than we do. That makes a bigger hole in the oil market and is behind this jump or this spike in oil prices.

                                             The question is do you think the $120 per barrel for WTI fully reflects the EU sanctions on Russian oil? I should throw into the mix it's not only they're not going to buy oil, they're also I think contemplating, requiring any insurer that insures oil vessels that take Russian oil and takes it over to China or India or wherever else, doesn't get that insurance. We're going to aggregate that insurance policy, which obviously significantly complicates the shipment of oil. I'm assuming that that 120 is roughly the peak and reflects the reality the EU's going to sanction and maybe [inaudible 00:56:44] insurance policies. Do you have any sense of that, any view on that? Any thoughts on that? Do you think I have that right?

Cris deRitis:                       I think you might have that portion right, but we're still [inaudible 00:56:59]

Mark Zandi:                      What else could go wrong?

Cris deRitis:                       Yeah, exactly. Exactly, or another country, right? What if India does decide, based on pressure, also reduce, or another country.

Mark Zandi:                      [inaudible 00:57:10] probability. yeah.

Cris deRitis:                       Okay. I'm just throwing it out. There could be some other factors here that impact-

Mark Zandi:                      Or I guess any other event. A ship gets stuck in the Suez Canal or something, kind of event, or terrorism attack.

Ryan Sweet:                      Gulf Coast hurricane.

Mark Zandi:                      Is that a possibility?

Ryan Sweet:                      It's hurricane season.

Mark Zandi:                      Oh, Gulf Coast. I thought you were talking about... Yeah. I was thinking somehow I had Middle East in my mind when you said that.

Ryan Sweet:                      Oh yeah.

Cris deRitis:                       Well, we've got these shifting weather patterns.

Mark Zandi:                      Yeah, exactly.

Cris deRitis:                       It's possible.

Mark Zandi:                      Right, okay.

Cris deRitis:                       A refinery goes out though, that's certainly within... Again, based on this article, if we're really so dependent on the refinery capacity, if we get some other shutdown-

Mark Zandi:                      Yeah, good point.

Cris deRitis:                       It might not affect oil price, but it might affect gas price.

Mark Zandi:                      But gas, diesel, jet fuel, all those things. Yeah, that's a great point. That's a great point. Okay. We're running on time, and we haven't played the game. Should we play the game? There's one more thing I want to talk about in what this all means for policy, monetary policy and markets. Then we could play the game, or do you want to just shelve the game for a week, or what do you want to do?

Cris deRitis:                       Oh, people love the game.

Mark Zandi:                      Okay, we got to play the game.

Cris deRitis:                       That's the commentary I get. I'm sure people are already upset.

Mark Zandi:                      You notice Ryan didn't say anything. I think he's got a baseball game to play or something.

Ryan Sweet:                      I'm fine.

Cris deRitis:                       We'll make it a quick game, how about that?

Ryan Sweet:                      Yeah. I'll just used my number, 74%, so I got to come up with a new one.

Mark Zandi:                      Oh, that would have been a bad number though, right? How in the world do we know... North Dakota wheat, 74%?

Ryan Sweet:                      Whoa, whoa, you and Cris... Well, because I didn't email you, and I didn't tell you what the number was, like what Cris does.

Cris deRitis:                       Oh.

Mark Zandi:                      Oh, that is so rude.

Cris deRitis:                       [inaudible 00:58:49]

Ryan Sweet:                      What was that one [inaudible 00:58:49] get out of here.

Cris deRitis:                       Come on. Oh.

Mark Zandi:                      Actually, I'd take that as a compliment, because if he thinks that, yeah, I'm doing pretty damn well.

Ryan Sweet:                      So you can start with Cris.

Mark Zandi:                      Yeah, and I do apologize, I didn't respond to your trolling, trash talking, trolling, trash talking stuff that you-

Ryan Sweet:                      You have to admit that was a good one though. The last two have been pretty good.

Mark Zandi:                      They're all good.

Cris deRitis:                       King of memes. King of memes

Mark Zandi:                      You're good at it. You're good at it. I got to hire someone to do it for me.

Ryan Sweet:                      Can we just clarify, I don't know if... You have a very loyal following, because people message me and be like, "This is very disrespectful to Mark." I was like, "You don't know, but I've been doing this 17 years."

Mark Zandi:                      Is that right?

Ryan Sweet:                      Yeah.

Mark Zandi:                      That is hilarious.

Ryan Sweet:                      You got a loyal following.

Mark Zandi:                      Oh, that is great. I love it.

Cris deRitis:                       They're looking out for you.

Ryan Sweet:                      I don't think people realize this is just in-

Mark Zandi:                      Thank you. Thank you, guys. Yeah, give Ryan hell.

Ryan Sweet:                      This is just for fun.

Mark Zandi:                      Hey, here's a challenge. If you've got a good meme for me to fire away at Ryan, I'll take it. Yeah.

Ryan Sweet:                      All right. Yeah.

Mark Zandi:                      Yeah. I need help here. I've never done this trash talking, trolling thing.

Ryan Sweet:                      Yeah, it's fun.

Mark Zandi:                      Yeah. You're good at it.

Cris deRitis:                       I don't know about the trash talking. I think you've done a fair amount of that.

Mark Zandi:                      Oh yeah, that's true. It's the trolling on the internet, whatever that is.

Cris deRitis:                       Okay.

Ryan Sweet:                      All right.

Mark Zandi:                      All right, let's talk about monetary or-

Ryan Sweet:                      Are we doing the game?

Mark Zandi:                      Well, let's end up on the game.

Ryan Sweet:                      Okay. All right.

Cris deRitis:                       Okay.

Mark Zandi:                      Because I just complete the thought here, their conversation around inflation. It was pretty obvious, markets did not like that number yesterday. I was a little surprised at how... Of course, it was a little hotter than what we anticipated, but not on core. We got core six tenths. That was percent increase in the month. That was what we expected. We expected eight tenths on the top line inflation number. We got one. That's the month over month increase. So it was a little hotter than expected. So you would anticipate some sell-off in the stock market and bond yields to rise, bond prices to fall, but boy, that was a pretty big correction yesterday.

Ryan Sweet:                      The two-year treasury yield jumped over 20 basis points in the day. It was a big move.

Mark Zandi:                      Yeah. So what do you think/ markets seem to be taking this a lot harder than we are. My view on the inflation outlook didn't change as a result of yesterday's number. I would have had the same conversation, same outlook about inflation a week ago as we're having this morning. So nothing changed for me, but for markets, it seemed to change. Is that because the Fed?

Ryan Sweet:                      The Fed assumptions. Yeah.

Mark Zandi:                      Yeah, okay.

Ryan Sweet:                      There was big shift in their-

Mark Zandi:                      So what are they now assuming on the Fed?

Ryan Sweet:                      Three 50 basis point rate hikes, June, July, September. So September was fully priced in a 25 basis point rate hike. Then after the CPI, it moved up to 50 basis points.

Mark Zandi:                      Right. What's the terminal rate? That's where the markets think the rate's going to end up at its peak?

Ryan Sweet:                      Right around three. 3%.

Mark Zandi:                      Still around three, not higher than three?

Ryan Sweet:                      I think it's a little higher than three, yeah.

Mark Zandi:                      A little higher than a three, 3%. Right now, we're at 1%. We're going to get a half a point increase next week at the June FOMC meeting, half a point at the July meeting. Now the market says a half a point in September.

Ryan Sweet:                      In September.

Mark Zandi:                      That gets you up to two and a half percent. Then a series of quarter point rate hikes until we get to three, three and a quarter, three and a half, somewhere in there.

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      That's what happened yesterday. So they're saying, "Okay, the Fed's going to look at this number and say, 'Uh-oh, I've got to step on the brakes even harder.'"

Ryan Sweet:                      Yeah, exactly.

Mark Zandi:                      Well, I've been meaning to ask you, there might be some logic to that, right? Because the one thing that we didn't talk about, which I think is critical to the inflation outlook, is inflation expectations. There's a lot of different ways of measuring inflation expectations. Look at consumer surveys, look at business surveys. I like the bond market measures, because that's people putting their money where their mouth is. If you look at those measures, they had, before yesterday's report-

Cris deRitis:                       Come in.

Mark Zandi:                      ... come in, and we're back pretty close to the fed's targets. But now they feel like they're migrating a little higher. So that would suggest the fed does need to send a stronger signal, either through the language they use or through action or both, probably both, to get those inflation expectations back down again consistent with their targets. So I was thinking maybe, and by the way, this migration up in inflation expectation, was that happening even before yesterday's number? But I'm sure with yesterday's numbers been reinforced, that right now, we have as our terminal rate for the funds rate of 275, that feels a little low to me in the current context. What do you guys think? Ryan, you're sticking with the 275?

Ryan Sweet:                      Yeah, because I think we might not even get there. The fed might break the economy before we get to the consumer.

Mark Zandi:                      Oh, that's right, because you think the recession risks were very high here. Yeah. Yeah, but given our baseline outlook, everything that we just articulated-

Ryan Sweet:                      Yeah, I think when we update the baseline, we should probably go to three.

Mark Zandi:                      Probably go to three. Well, I don't think we have a 50 basis point hike at the September meeting. We probably should put that in.

Ryan Sweet:                      Put that in.

Mark Zandi:                      That feels like it's going to happen.

Ryan Sweet:                      It's a done deal.

Cris deRitis:                       You want to [inaudible 01:04:30]

Mark Zandi:                      Recession's a done deal?

Cris deRitis:                       No, the 50 basis points.

Mark Zandi:                      Oh, the 50 basis points.

Cris deRitis:                       In September.

Mark Zandi:                      Yeah, okay.

Cris deRitis:                       You assign any probability to a 75 or 100 basis point, shock and awe?

Mark Zandi:                      That's to Ryan.

Cris deRitis:                       Either.

Ryan Sweet:                      Yeah, I don't think they would do that, but especially 100, that would be full-fledged panic mode, and markets would just not like that.

Cris deRitis:                       Well, if you want to tap down inflation expectations.

Mark Zandi:                      Well, we're not that far away, Cris, I don't think.

Cris deRitis:                       No.

Ryan Sweet:                      [inaudible 01:04:58]

Mark Zandi:                      Just to give you a sense of the... The best measure, in my view, the one I look at every morning, is one year, five year forward. So that's inflation a year from now and the subsequent five-year period. You abstract from all the weirdness in the near-term, but get to kind of what people think it's going to be in the intermediate term. Last I looked, that was a 2.7%, something like that. So it needs to be a two and a half to be within the Fed's target. So it's not too far away. It's on the high side, but not too far away. So 7,500 basis points would be, I think, really pushing a sledgehammer and really risking pushing the... Here, to concerns about recession risk if they overdo it, did you look at mortgage rates yesterday, fixed mortgage rates? 5.85% on a 30-year fixed. So that's already moving up pretty significantly here. Okay. All right. Let's-

Cris deRitis:                       But is it one hike for... You're talking two 50s versus one 75, right, in terms of a total. It may not have to go as far.

Mark Zandi:                      Oh, is that what you're saying? Oh yeah. Okay. That makes sense.

Cris deRitis:                       Or you just front-load it versus... I'm not saying we-

Mark Zandi:                      You're want to send a message, a strong message.

Cris deRitis:                       Yeah, send a message. Yeah.

Mark Zandi:                      Yeah, I don't know.

Cris deRitis:                       If you're trying to break the psychology.

Mark Zandi:                      Yeah, it feels like you might break the economy, to Ryan's point.

Ryan Sweet:                      That 50 basis point hike at the last meeting, that was the first time in decades that they moved by 50 basis points up. So going 75 would be...

Mark Zandi:                      So far, okay-

Cris deRitis:                       Well that's my point. The 50 really didn't do much to the expectations, right?

Mark Zandi:                      Well look at it the other way. The other way to think about it though is financial conditions, because that's ultimately it's monetary policy affects equity prices, bond prices, value of the dollar-

Ryan Sweet:                      Credit spreads.

Mark Zandi:                      ... credit spreads, and ultimately the economy. So if you look at financial conditions, I would say that feels pretty close to where the Fed would want it, right?

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      The stock market is now down based on yesterday's move I think 18%, not quite bear market, from the peak. You got 5.85% mortgage rates. What are credit spreads, Ryan? Where are they?

Ryan Sweet:                      They are 450, high-yield corporate bond spreads, 450.

Mark Zandi:                      Okay. They're not too high though.

Ryan Sweet:                      No, the historical average is around 500.

Mark Zandi:                      That's kind of average. Yeah. But I guess there's compositional issues.

Ryan Sweet:                      Yeah.

Mark Zandi:                      Yeah, okay. So maybe it is higher than it looks like.

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      Dollar's up not a lot, but it's up pretty significantly from where it was a year ago.

Cris deRitis:                       Yeah.

Ryan Sweet:                      Yeah.

Mark Zandi:                      So it feels like financial conditions are where you'd want them.

Ryan Sweet:                      Yeah, I would agree.

Cris deRitis:                       I think they went a little tighter.

Mark Zandi:                      You do? Okay. So do you think they're actually going to raise 75 basis points?

Cris deRitis:                       I don't think so, but I wouldn't put a zero probability on it though.

Mark Zandi:                      Oh yeah.

Ryan Sweet:                      No, it's not zero.

Mark Zandi:                      All right. Okay, very quickly, and then we're going to go to the game. What is your odds of recession over the next 12 months, over the next 24 months, Cris?

Cris deRitis:                       12 months?

Mark Zandi:                      Why's he delaying? I asked him the same question last week.

Cris deRitis:                       I'm trying to remember what I said. I think 40%. I haven't changed. 40% and then my... Is it 18 months or 24 months that you want?

Mark Zandi:                      24.

Cris deRitis:                       24? Oh, then it's-

Mark Zandi:                      I think you said 55 or 60 or something like that.

Cris deRitis:                       Yeah, 60.

Mark Zandi:                      60. So 40 and 60. 40 over the next 12 months, 60 over the next two years. 

Cris deRitis:                       Yeah.

Mark Zandi:                      Ryan?

Ryan Sweet:                      45 over the next...

Mark Zandi:                      12?

Ryan Sweet:                      And then 75.

Mark Zandi:                      Okay, that's roughly the same, think, right?

Ryan Sweet:                      Yeah, hasn't changed that much.

Mark Zandi:                      I'm the same. I'm one third probability over the next year, and close to even odds, but not quite over the next 24. Okay.

Ryan Sweet:                      But if the Fed does what Cris wants them to do, yeah, then-

Mark Zandi:                      Yeah, then it goes up.

Ryan Sweet:                      ... it's over.

Mark Zandi:                      Yeah. Well, yeah. Okay.

Cris deRitis:                       [inaudible 01:08:57] to do. I like it. I like how you...

Mark Zandi:                      Yeah.

Cris deRitis:                       Spin the story a little there. Yeah.

Mark Zandi:                      All right. Well, the problem with playing the game at the end of this conversation is we've talked about a lot of statistics, so makes it more difficult, but let's give it a shot. Cris, you want to go first?

Cris deRitis:                       Sure, 9.8.

Mark Zandi:                      Oh, can I say-

Cris deRitis:                       Oh, go ahead.

Mark Zandi:                      Can I say something?

Cris deRitis:                       Yeah.

Mark Zandi:                      Just to remind everybody, the game, the statistics game, we each provide a statistic, the rest of us try to figure that out through questions and clues and deductive reasoning. The best question is one that's not so easy that we all get it quickly, one that's not so hard that we'll never get it. Hopefully, it's related to the topic at hand or not something that came out at the beginning of the year. Something more recent than that. Okay, so fire away, Cris.

Cris deRitis:                       9.8.

Ryan Sweet:                      Percent?

Mark Zandi:                      9.8%.

Cris deRitis:                       No. Do you want some units? Okay. Basis points. Basis points.

Ryan Sweet:                      Basis points.

Mark Zandi:                      9.8 basis points?

Cris deRitis:                       Yes.

Ryan Sweet:                      Okay.

Cris deRitis:                       .098%.

Mark Zandi:                      Is it an interest rate?

Cris deRitis:                       It is related to an interest rate.

Mark Zandi:                      It is related to an interest rate?

Cris deRitis:                       Interest rates. Yeah.

Mark Zandi:                      Interest rates. Is it-

Cris deRitis:                       Oh, you got it now. Come on.

Ryan Sweet:                      I don't know. It's not the yield curve.

Cris deRitis:                       Of course it is.

Ryan Sweet:                      Oh.

Cris deRitis:                       Of course it is.

Mark Zandi:                      Oh, that's the... Oh.

Ryan Sweet:                      Cris, it's Saturday morning.

Mark Zandi:                      Oh, you just complicated things. When you said nine basis points, we would have gotten it right away.

Cris deRitis:                       That's the whole point. That's the whole point.

Mark Zandi:                      Yeah, yeah. Okay. Okay.

Ryan Sweet:                      Talk about ruining my Saturday morning, we're talking about money supply?

Mark Zandi:                      Okay, but only the three of us understand what you were saying. Go ahead and explain it.

Cris deRitis:                       All right, so it's the yield curve, the difference between the yield on a 10-year treasury security and two-year treasury security. We've noted in the past that when it inverts, we have a recession within 15 months. At least historically, it's always been a great predictor. So it came down a lot yesterday.

Ryan Sweet:                      Oh really? Okay.

Mark Zandi:                      I think he's wrong, Ryan. If you round, take 9.8 and round that to 10, I think it's up nine basis points. The spread is nine basis points, I should say. It's not 9.8. where'd you get the 9.8?

Cris deRitis:                       Okay. For the record, the 10-year was last quoted at 3.165.

Mark Zandi:                      Okay.

Cris deRitis:                       The two-year was 3.067.

Ryan Sweet:                      So the simple difference.

Cris deRitis:                       Simple difference, 9.8.

Mark Zandi:                      Okay. Well, you blew away my statistic, because mine was going to be 3.067.

Ryan Sweet:                      That's the 10-year.

Mark Zandi:                      Yeah, well, because it is the news, right?

Ryan Sweet:                      Mm-hmm.

Mark Zandi:                      That, as you pointed out, Ryan, you notice, Ryan, when you said the two-year was up a lot, I didn't ask anything about that.

Ryan Sweet:                      No, I know.

Mark Zandi:                      Because it was my statistic. Now we should explain it. That is the clearest barometer of what investors think the Fed is going to be doing. So if the two-year rises or falls, that's investors saying, "Hey, they're going to press on their brakes more strongly or take them off the brakes or press on the accelerator more." So that's a very key measure to use. Back to the yield curve, the difference between the 10-year and two-year treasure yield, that yield, that spread, nine basis points, that's pretty narrow, but it's not the narrowest it's been, right?

Ryan Sweet:                      Oh, it actually did invert in early April.

Mark Zandi:                      It did invert. Yeah.

Ryan Sweet:                      For a couple days, but it widened out again a bit, and now it's back down below 10. Right.

Mark Zandi:                      I do want to point out that that's one of the key reasons why my odds of recession over the next two years is high, but less than even odds, because we haven't actually inverted in a meaningful way, what I would call a hard inversion over a long period of time, which would be a clear signal of a future recession. But the flattening of the yield curve, nine basis points, that would be consistent with an economy that's really going to slow here, and it's kind of right on the edge of recession.

                                             By the way, I wanted to point out we had the business survey. We do this business survey every week. We haven't talked about it in a while. I just got it for last week. The most prescient indicator in that survey is the percent of respondents that say present business conditions are improving. So they're saying they're getting better. If that falls below 20%, that historically signaled recession. It almost nails the timing of the recession. It went below 20% last week. 18%.

                                             Now when I say this, it gets below 20 for a month, at least four weeks that's been the case, but it's only been one week. So we'll watch this very, very carefully. But that kind of sent off a little bit of an alarm bell for me, but we saw that happen. That's consistent with all the other survey.

Cris deRitis:                       Not enough to change your odds.

Mark Zandi:                      Well, I'm not changing it yet. That is still very consistent with close, but not recession.

Cris deRitis:                       I don't know. All right.

Mark Zandi:                      Okay, Ryan, you're up.

Ryan Sweet:                      All right, I'll give you guys a-

Mark Zandi:                      Don't say 3.165.

Ryan Sweet:                      Yeah, yeah. I'll give you the 30-year treasury... I'll give you an easy one. 46.8.

Mark Zandi:                      46.8.

Cris deRitis:                       Is that a UMich sentiment?

Mark Zandi:                      I was going to say that. Yeah. Yeah, because that's the only other really-

Ryan Sweet:                      Expectations.

Cris deRitis:                       Expectations.

Mark Zandi:                      Expectations. Yeah. Expectations.

Ryan Sweet:                      Record low.

Mark Zandi:                      Yeah. What?

Ryan Sweet:                      I think it's a record low.

Mark Zandi:                      Even in the financial crisis?

Ryan Sweet:                      So the headline consumer confidence is below what we saw during the pandemic, lower than we saw during the great recession. It's the lowest since the early 1980s, I think. Actually, I think it's a record low.

Mark Zandi:                      Well, hold it, wait. You said record low. Is it a record low, or is it low since the-

Ryan Sweet:                      Hold on. I'm looking. 

Mark Zandi:                      Yeah, really curious.

Ryan Sweet:                      Yeah, it's a record low.

Mark Zandi:                      Oh my gosh. Wow.

Ryan Sweet:                      It's lower stock prices and surging gasoline prices.

Mark Zandi:                      Yeah. No, I can explain it. The Conference Board Survey, which is labor market oriented, which the labor market's strong, it's much higher, but still, that's pretty depressing. Yeah. All right, it is going to be-

Cris deRitis:                       The political breakout is ridiculous.

Mark Zandi:                      Oh yeah.

Ryan Sweet:                      I can't imagine.

Mark Zandi:                      Oh that, yeah.

Cris deRitis:                       The republicans need [inaudible 01:15:28].

Mark Zandi:                      Yeah. No, they need a... Well, I won't say anything.

Ryan Sweet:                      They need a cherry drink.

Mark Zandi:                      Have you ever had Negronis? Have you ever had a Negroni? No? You got to have it. It's a great summer... Here, this goes back to where we started, the quality of life. You got to think about improving your life. Spend a half hour doing it, maybe 15 minutes, that would be good, and explore the world of Negronis. Very popular drink these days, but very good. You should know that, Cris, it's an Italian drink.

Cris deRitis:                       It is. Yeah.

Mark Zandi:                      Do you drink Negronis? Oh, you don't like Negronis?

Cris deRitis:                       Not regularly, no.

Mark Zandi:                      Oh. Well, here's the problem. This is why you don't like Negronis. You only have one Negroni. That's the problem. You got to have at least two Negronis. I'm telling you, there's not many things in the world when you consume more of it, it tastes better the more you consume. Would you agree with that statement?

Cris deRitis:                       See, I would-

Mark Zandi:                      Would you agree with that statement? That's a fact.

Cris deRitis:                       That's an economics-

Mark Zandi:                      The first sip of coffee is better than the last sip of coffee, right? Generally.

Cris deRitis:                       The marginal return is diminishing, right.

Mark Zandi:                      But this is not true with Negronis. It goes the other direction. There is a point-

Ryan Sweet:                      The max.

Mark Zandi:                      ... where it starts to go down.

Ryan Sweet:                      Yeah. I haven't done that yet.

Cris deRitis:                       I think there's a PhD thesis in the works.

Mark Zandi:                      Well, after this conversation, I'm definitely having a couple Negronis tonight. Yeah. So highly recommend it. I'm just saying, I just gave you a life tip. That's a life tip. I consider that to be a life tip. Highly valuable advice, the two Negroni piece of advice. I'm going to look to you guys in the future at these podcasts for a life tip that's going to make my life better. It's not all about me making your life better. You got to help me make my life better. Deal?

Cris deRitis:                       Try something other than hazelnut coffee tomorrow morning. How about that?

Mark Zandi:                      It's very easy. The bar is low.

Cris deRitis:                       I guarantee.

Mark Zandi:                      I'm not kidding. All right. Ryan has no comment. He's just thinking about his next meme to go after me. I can feel it already.

Ryan Sweet:                      No.

Cris deRitis:                       I had a question for you, Ryan.

Ryan Sweet:                      Yeah, go ahead.

Cris deRitis:                       Vet services. This goes right to your household. What's going on there?

Mark Zandi:                      Is it up or down?

Cris deRitis:                       It was down.

Ryan Sweet:                      It's up.

Cris deRitis:                       No, prices on the month.

Ryan Sweet:                      Oh, the CPI, yeah.

Cris deRitis:                       CPI price, yeah.

Mark Zandi:                      Why?

Ryan Sweet:                      I have no idea. I'll ask [inaudible 01:17:57]

Mark Zandi:                      Oh, I can tell you why. I can tell you why. Wait.

Ryan Sweet:                      I'll go grab her.

Mark Zandi:                      I've got good intuition around this. It's a price normalization. During the pandemic, everyone got dogs and cats and birds and whatever. There was a surge in demand. Now we're on the back side of that, right? We went from incentive demand-

Ryan Sweet:                      She's still so busy.

Mark Zandi:                      Huh?

Ryan Sweet:                      She's still really, really busy.

Mark Zandi:                      She's still really busy, but not busier than she was two months ago. This is your wife, who's a vet.

Ryan Sweet:                      Yeah, she's a vet.

Mark Zandi:                      Busy? Still busy?

Ryan Sweet:                      Probably the same. I can ask her. I don't-

Mark Zandi:                      It's just a theory. It was just a theory.

Cris deRitis:                       It's just one month too, so who knows? It could reverse [inaudible 01:18:44].

Mark Zandi:                      That's right. Well, I can come up with an explanation or that too. Just-

Cris deRitis:                       I know you can.

Mark Zandi:                      Okay. This was a good podcast, not that I'm recommending we do many of these on Saturday mornings, but I think this was pretty good for Saturday morning.

Ryan Sweet:                      It was good.

Mark Zandi:                      Yeah. Okay. All right. With that, we're going to call it a podcast. Thanks everyone. Take care now.