Nobel economist Paul Krugman said housing and employment market data may have been overstated. And inflation could be dropping quickly

Paul Krugman.REUTERS/Brendan McDermid
According to Paul Krugman, a top economist, inflation could be rapidly falling due to overstated economic data.

Paul Krugman believes that inflation could be rapidly falling as certain data points from the labor market and housing market may overstate prices.

The Nobel laureate, in a Twitter thread, compared government data frequently cited by Federal Reserve which show higher inflationary pressure to private sector data that indicates lower inflation.

“Many observers know that the rise in official shelter prices is largely due to an increase in rents last years, largely driven by work from home. Recent market rent inflation has been low or even negative. A similar, but less dramatic, phenomenon may be occurring with wages. Averages are rising due to a hot market some month ago,” Krugman stated in commenting on data from Indeed or Zillow.

According to Labor Department data, shelter prices saw the largest increase in one month in more than 20 years. They climbed by 0.8% in October. Hourly wages also increased at the fastest rate since January according to the November Jobs report, rising 0.6% last month.

These indicators could spell trouble for the economy as housing accounts for 40% of core inflation. Wage growth could also keep inflation stuck and force the Fed into being more hawkish.

Economists recognize that data can be distorted. According to Wharton Professor Jeremy Siegel, home prices often trail the official statistics by around 18 months.

Krugman also pointed out cooling housing data such as Zillow’s three-monthly annualized measure of shelter inflation which shows rapidly falling prices. According to Indeed Hiring Lab, wages advertised in Indeed job postings are cooling. They grew 6.5% in November, compared to 9% in March.

This suggests that housing and wages could be sources of disinflation. Krugman warned that the Fed runs the risk of tightening the economy. He urged central banks to stop raising rates instead.

The Fed has taken drastic measures to control prices, increasing rates by a staggering 375 basis points this fiscal year and another 50-basis point hike next week.

Business Insider has the original article.
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By: jsor@insider.com (Jennifer Sor)
Title: Nobel economist Paul Krugman says housing and labor market data may be overstated, and inflation could be dropping rapidly
Sourced From: markets.businessinsider.com/news/stocks/paul-krugman-inflation-drop-housing-prices-labor-market-wages-cooling-2022-12
Published Date: Fri, 09 Dec 2022 14:48:21 +0000