U.S. inflation cools again, giving Fed room to downshift on rates
bloomberg.com
bloomberg.com
I hope not. There's an absurd amount of dumb money floating around, and YoY inflation is still at 6.5%. Higher interest rates are going to force companies and investors to actually post profits instead of functioning as giant leeches on the economy.
And in the housing market as well. All sorts of silly things have happened with home prices due to all the cheap money.
The Fed uses PCE. It is likely to behave similarly to CPI, though part of the reason the Fed has been as aggressive as long as it has is that PCE diverged more than is historically common from CPI during the inflation spike, spiking higher and coming down more slowly..
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch...
For context:
https://www.macrotrends.net/2015/fed-funds-rate-historical-c...
I couldn't find this particular piece of data published anywhere, but I did a little math and arrived at an annualized rate of inflation for the last 6 months of 5.85%, well above the 2% target.
They’ve barely unwound any of the Feds balance sheet. I think it’s ridiculous for the markets to assume the fight is over and position for a pivot.
Imagine what would happen if the fed started selling $100B+ in treasuries per month. EVENTUALLY we’re gonna have to address that plus our enormous congressional deficit.
It doesn’t take a genius to observe cash is GUARANTEED to loose value. In the current environment it’s the least safe asset…it just doesn’t have the same volatility to it!
In that sense the inflation is now baked in, and we only make future increases slower but we don't unwind back to the original price without some serious deflation.
* Fuel oil -16.6%, biggest decline since February 1990
Seems important to point out to anyone reading your comment
I don’t care what the government publishes. My friends around the country all confirm this. My own bills (I track itemized) show it as well. Though, to your point, much of the increase occurred in 2021 - it just never came down.
2. Fuel is only down because the US has used its strategic reserve to increase supply. At the same time demand dropped dramatically, with China lockdowns & increased prices forcing manufacturing / transportation to cease. Now the election season is over I suspect the strategic reserve will stop being drained; further if price caps work on Russia… we will see a massive reduction in the global fuel supply (Russia will just stop pumping as its unprofitable).
I hear this everywhere, but as far as I can tell its a complete myth. The "basket of goods" that CPI is based on does keep track of changes in quality and quantity of the goods.
> If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, a container of orange juice containing 59 ounces instead of 64 ounces) of the good or service since the last time prices were collected, the data collector selects a new item similar to the old item. This is referred to as a substitution.
> When substitution occurs, the commodity analyst reviews the new item and price. The new price may be quality adjusted for use in index computation. Conceptually, the CPI seeks to be a constant-quality measure, though accurately quantifying quality change may not always be possible. Detailed information about quality adjustment procedures is in the calculation section.
Yeah, the data is inflation going down (and not to negative values) year over year, not prices going down. Just means prices are inflating slower, not going negative.
And shrinkflation has been around for decades. It was a thing even when inflation was at 'normal' 2% levels.
Edgar Dworsky is the guy that all the media companies bring on as the expert on shrinkflation (just look up his name, pretty much all news sites have articles about him), has had his blog up pointing out all the instances of shrinkflation since as far back as 2006[1].
That's not actually in disagreement with the notion that inflation has come down a lot.
(for prices to come down you'd need deflation)
If prices rose whatever percent last 18 months, and inflation drops to zero tomorrow... Prices will stay exactly the same. They just won't increase further day to day any more (at zero inflation).
"Inflation is still high, I know that because prices are still up compared to before " is a logical error.
I was pointing out most of the increase the last 3 years occurred in 2021. I actually believe 2022 has far higher inflation than they claim in government figures. At least locally, it’s higher based on my tracking.
2023 will be worse for food due to fertilizer issues, I suspect fuel prices will also increase. Effectively, expect more expensive commodities. That said I’d suspect housing and other goods being kept up with loans to decrease.
For fertilizers - it takes ~10 years to get potassium online, for instance. The other chemicals take 3-5 years, so we shall see how this goes.
That is precisely what "Core measure rose 0.3% in December" means. The period of high inflation is (apparently) over. The price increases that inflation generated will tend to stick around.
The prediction that inflation spike was transitory (which was universally abandoned anyway) was not a prediction of a rapid return to past prices, but of a rapid return without significant policy intervention to normal rates of inflation.
> At least locally, it’s higher based on my tracking.
Local inflation tends to differ from the national average one way or the other, and I doubt your tracking is anywhere close tonas comprehensive and systematic as any of the major federal government inflation measures.
OTOH, the PCE—which is what the Fed uses to guide police decisions—during the spike has jumped higher than the CPI and came down slower, so “the CPI has understated recent inflation” is part of the premise of recent monetary policy.
That seems to qualify as "transitory" inflation to me, as opposed to persistent inflation that doesn't abate.
That said, fair enough - it’s really hard to predict commodity prices at a global scale. China locked itself down which cut its usage, for instance.
In addition, a series of issues unrelated to monetary policy have hit individual items like eggs (avian flu) and lettuce (INSV) and so on, because food is messy.
2. The election season has been over for two months, and yet the SPR is continuing to contribute to US supply[0], so apparently not everybody thinks solely in election terms.
Russia is more complicated; they are at least as focused on their limited opportunities to earn and spend money given sanctions as on hurting us, which they might see as less easy to do now that the election season has been over for two months.
0. https://ycharts.com/indicators/us_ending_stocks_of_crude_oil...
Poppycock. From StatCan, who do the CPI numbers in Canada:
> 7.10 Quantity adjustment entails accounting for changes in the quantity (e.g. package size, number of tissue ply, etc.) of observed POs. This is another implicit method of quality adjustment because it is assumed that the quality per standardized unit is the same over time.
* https://www150.statcan.gc.ca/n1/en/pub/62-553-x/62-553-x2019...
> 2. Fuel is only down because the US has used its strategic reserve to increase supply.
Fuel is down in Canada as well, which has no strategic reserve. Or it could be because geopolitical events have stabilized a bit and global oil prices are down:
If the 60% increase in butter prices over the last year is hitting your budget, you probably would benefit from eating less butter. (And I say this as someone who eats a good amount of butter...)
The comment you replied to has the non-cherry-picked number for this month's report: "Food at home +0.2%"
Some things went up more than others, some recovered faster, and without deflation the prices will remain overall higher than they were a year ago.
If I subsist entirely off the cocktail shrimp at my local Wegmans and have no other expenses, my inflation value is something like 500%. Is that a particularly useful number for the Fed? No.
It's why we have a nation-wide check on the prices of a well-researched selection of staples in the average proportions they make up in an average person's budget, rather than polling random people on the Internet for anecdotes. That number is far more useful.
The official BLS numbers are underreporting inflation. Overall, groceries are up roughly 35-50% since 2020, while the official numbers would have you believe the inflation was 18.17% over 3 years.
BLS does a lot of trickery to generate favorable numbers. There are "quality" adjustments, there are "core" inflation indicators, which exclude goods with high price fluctuations (e.g. eggs).
I buy a pretty diverse basket of goods (groceries too) overall, and so far, none of the official inflation figures have even come close to my observed price increases.
Lumber, tools and hardware in home improvement stores are all up 30-60%. Food, like I said, is up 30% at minimum since the start of the pandemic.
Maybe clothes and TVs kept a stable price, but who cares?
Lumber, incidentally, is back to normal nationally. Down 63% in 2022. If you're still seeing 60% above normal, you're either in an area with a supply issue, or you're getting hosed by the store. https://www.wxpr.org/business-economics/2023-01-04/despite-i...
It's not one person, and I can assure you the Bureau of Labor Statistics employs a wide range of professionals.
> I have friends in six states everyone of them tallying their monthly expenses
Cool. Anecdote coupled with strong selection bias.
And?
Food prices make up ~13% of the BLS CPI because, according to their surveys, that is what the national average is for an average basket of goods:
* https://en.wikipedia.org/wiki/Consumer_Expenditure_Survey
If you purchase more or less food than average, then your personal CPI will be different that the average that is reported in headlines. Further, the fact that you see some the price (inflation) in your face regularly is a form of cognitive bias:
* https://en.wikipedia.org/wiki/Attentional_bias
People noticed petrol prices go up and that inflation, but they're thinking less about the deflation of petrol going down, probably because they think the lower prices are "normal".
And when they do this, they compute that food-at-home rose 0.2% in December (2.4% annualized).
Surely putting together an inflation index consciously designed not to replicate an average American diet would be a much, much worse measure of food inflation than one that does actually try to model the average American's situation? "Everyone should be going paleo so the index shouldn't have bread in it" is a self-evidently bad idea, that's not a statistician's job. A single inflation number is hardly ever going to be a correct measurement of any single person's experience of inflation, but that's inevitable.
There are real criticisms to make, such as the average basket of goods not characterizing the inflation felt by the poorest, because they spend money on different things than people with a bit more money.
It is just an (imperfect!) aggregate measure of prices, and it certainly seems to capture something- inflation was low for a long time, then COVID, then it got high, then rates went up, then it went down again. When inflation is very high there aren't many inflation truthers going around insisting that actually, inflation is low; when inflation falls or stays low, there's always people insisting that actually not everything is great. Which: yes! You can have low inflation and all sorts of problems! But having those problems and high inflation is worse.
It's not hiding anything, it's just not rich enough to capture everything you're interested in.
The Aivian flu + inflation caused a carton of 18 eggs to increase in price more than 50% recently (<$5 to > $7.50).
My household has fought this increase by increasing mushrooms and spinach in our eggs, and recently hybridizing with liquid egg whites.
Yes, and food makes up ~13% of the BLS CPI. This is taken into account when they do their surveys to see what people are spending their money on:
* https://en.wikipedia.org/wiki/Consumer_Expenditure_Survey
Remember that the CPI is the national average inflation for an average basket of goods, and not your personal inflation. In Canada, StatCan actually has a personal CPI tool so that you can see how things are for your personal basket of goods:
* https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015...
The survey would determine how many eggs people eat, both directly (omelettes) or indirectly (or as a component, as in cake):
* https://www.statista.com/statistics/183678/per-capita-consum...
And from there the BLS would know how many to put in the basket of goods it uses. Which they have listed in this table:
* https://www.bls.gov/news.release/cpi.t02.htm
And here's the data series for the price of eggs:
* https://data.bls.gov/timeseries/APU0000708111
* https://fred.stlouisfed.org/tags/series?t=bls%3Beggs
What people put in the the survey would indicate the the "importance of eggs" (in the average case).
I eat 3 eggs a day for breakfast, 4+ days a week for the last 25 years.
Also, it seems pretty silly to talk about a dollar of extra cost as a problem in the context of making homemade pasta. Homemade pasta is a time intensive luxury.
Most store-bought dried pasta has zero egg in it.
An entire homemade cake has like three eggs in it. So the price of an entire cake is up less than a dollar. How many cakes does the average household bake in a year?
- Cleanest (High Protein, Low fat)
- Cheapest (Cheaper than pork and chicken per g of protein)
- An important ingredient (as a lectin) in many baked goods
You then turn this into an absolute number for 1. But your absolute number of a $150/person/year would certainly approach 10% of my annual grocery spend... which lines up. Your absolute number would be frightening for a family of 4 making the median income.
Inflation is not personally affecting me negatively - for the record, I think it's a reversion to the mean and 10 years of fed targets finally being achieved.
But... there is no question that industrialized agriculture keeps the price of lettuce lower on average than non-industrialized approaches. If you are just watching prices, the trade is still positive.
Every month for the last six months has produced the same comment. Overall inflation is low so somebody picks out a specific thing that went up a lot and implies that the government numbers are either misleading or lies. Interestingly, it is a different chosen product each month.
Egg prices are also being driven largely by disease and culling and don't really represent something that should be attacked with monetary policy.
Your cost per unit (not overall gas bill) doubled in december? What gas provider do you have?
My gas company priced units 3.8% higher in Dec than Nov.
in any case, I adjusted the comment to clarify
This is not a meaningful phrase.
>> This is not a meaningful phrase
> Sure it is,
No, it is not. You meant some sort of recession, as if thats an undesired massive financial correction. This has been a long time coming and is better in the long run if the correction happens sooner than later. Good luck with whatever.
> Nine times since 1961, the central bank has embarked on a series of interest rate increases to rein in inflation. Eight times a recession followed. The only true “soft landing” — as significant rate hikes with no subsequent slumps are called — occurred in 1994, according to a March 25 report by investment bank Piper Sandler. Not a sterling track record.
What I'm trying to say is, unless for investment or research, these data doesn't have much to do with we as individuals. You can see people arguing that "You all feel X goes up but I don't feel that", and I'm just saying the same thing but from a different perspective.