Traders work on the floor of the New York Stock Exchange. Photo: Reuters/Lucas Jackson

US markets were dead flat after the most-watched CPI number in many months. US Treasuries were up or down a sixteenth or so, and the S&P 500 Index was unchanged.

The trouble is that the inflation data were neither hawkish nor dovish, but exactly the opposite: they were utterly confusing, at least to most analysts. Bloomberg Intelligence, the soft core of conventional wisdom, had this to say:

“The ongoing divergence between core goods and services continued, and actually widened in August. Core CPI goods fell 0.1%, while core services rose 0.4% — so the year-on-year trends remained in stark contrast…the weakening trend in the core goods category is impressive in light of this year’s dollar depreciation. Ordinarily, faster economic growth and dollar weakness should support inflation for CPI goods, but this has not been the case of late.”

What the Bloomberg economists neglect to mention is that the single largest category of “service” inflation is actually a good, namely housing. In the weird and wonderful world of the Bureau of Labor Statistics, housing is a service that you sell to yourself. You buy a house and pay yourself a virtual fee to live in it. That is called “Owner’s Equivalent Rent.”

That is rising quickly; as we noted in our flash response to the CPI number earlier today, home price inflation is driven by a low baseline after the 2008 crash, and 30-year mortgage rates below 4% in most of the country.

That is, Americans who can put money into houses do, and the ones that can’t are also defaulting on car payments, leading to a glut of used cars on the market.  The aggregates have become increasingly hard to interpret given the cross-currents. So the markets are just flashing confusion from traders’ screens.