4 ms·

I think the OPs point is that the YoY numbers are largely meaningless. I don't think the Fed is trying to cause a period of deflation where we'd go back to the

I think the OPs point is that the YoY numbers are largely meaningless. I don't think the Fed is trying to cause a period of deflation where we'd go back to the prices we had a year ago. Rather, they're trying to at least get inflation flat so prices stop growing. Where OP is wrong is that MoM inflation is not flat. It's quite high when annualized (~7% the last two months).

ravenstine 4y ago
Their point isn't correct. Neither one is meaningless, and just because a particular month is more inflated than another doesn't even mean that a year overall is inflated. The fact is, if one had let their currency sit in the bank since Jan 2022, at least 8% of the value of that currency is lost. Assuming that a fraction of a percent of inflation in a given month isn't that significant is a human failing of comprehending the long term. People shouldn't just be blowing their earnings every month. They should be at least saving some of it and maybe making some investments, in which case YoY inflation is a big deal. If one has $100,000 sitting in the bank for a year, that's around $80,000 that might as well have been set on fire because that $100,000 has less buying power. My issue with the OP wasn't this exactly, but that they were implying that news outlets are being deceptive when reporting inflation. I'm not one to defend journalism, but these articles make it pretty clear that it's YoY inflation they're referring to.
- kotlin2 4y ago
  What you’re saying is true, but not really related to the policy makers decision making process at the moment. If inflation were up 8.5% YoY but MoM was flat for the last three months, the tone of the conversation would be very different. The original July numbers were flat, and everyone was excited to predict the Fed pivot that would occur any day. If only…
- colinmhayes 4y ago
  Really disagree that news outlets make it clear that they're talking about yoy inflation. You see headlines like "inflation hit x% in august" and then they're quoting the yearly numbers. If you don't already know that inflation is measured yearly that headline is completely misleading. But the point of OP is that past inflation isn't what we should be worried about, future inflation is. Obviously the inflation we've had this year is unacceptable, but that doesn't mean inflation will continue to be unacceptable, and looking at recent monthly numbers is a better way to try to gauge future inflation than looking at yearly numbers.
- ianai 4y ago
  The problem with a year out projection is there are many FOMC meetings and time for markets to move around in that time. Indeed, markets can react so harshly that the Fed stops seeing the inflation they're worried about and even may start to worry about deflation - though this definitely seems highly unlikely right now. You can see this happening in the monthly cycle of market valuations being down when the market finds out about market indicators then slightly up in later periods once the market corrects its overcorrection. Ultimately modernity never saw a covid-19 before 2020 and is still in the post-reaction phase to it. 1918 happened in the midst of WWI and took several years to return to normalcy. (Notably, the 1920s were known as the "roaring 20s" until October 1929.) I wish people would review all the history of the first half of the 1900s. There were multiple depressions in the 19-00s that helped create the conditions for WWI - which then created conditions for the 1918 pandemic - which then created conditions for the euphoric 1920s (and hyper inflation in Germany?) - which then created the conditions for the Great Depression and the rise of actual, violent fascism in USSR/Italy/Nazi Germany - which of course led to WWII and so on. (Notably that period of time is not exactly 'wonderful' for the USA.) and Spain had a violent civil war in there.
  - ianai 4y ago
    (to think there were many poor souls born in those early 1900s and died in WWII - never getting much of a chance to see much stability.)
  - cykros 4y ago
    The early 20th century history is definitely worth knowing about, and while they didn't have the orderly monetary stimulus backed by a central bank running the printing press at full speed, they did have the far less regulated fractional reserve lending systems that had a similar effect on money supply (no margin reserve requirements, banks and brokerages competing with each other for lower rates to indefinitely rehypothecate the same assets, etc). As the saying goes, history doesn't repeat, but it does rhyme, and those rhymes could certainly be useful to see coming.
- ShroudedNight 4y ago
  > that's around $80,000 that might as well have been set on fire Surely this should be 8k if using 100k as baseline
galdosdi 4y ago
I'm quoting numbers from the BLS, no need to point me at the BLS. The last two months of CPI were 0.2 and 0.4 respectively. (0.2 + 0.4) * 6 = 3.6, not 7. You accidentally put a factor of 2. (yes I know multiplying by 12 to go from month to year is an approximation, but it works well)
- kotlin2 4y ago
  Food and energy have very high variance. The Fed uses core CPI, which excludes food and energy, as an important gauge of price changes. The data I quoted was the core CPI data (also from BLS). To use the non-core CPI numbers for the last two months is really cherry picking, especially with how much energy costs were down last month.

ravenstine 4y ago

Their point isn't correct. Neither one is meaningless, and just because a particular month is more inflated than another doesn't even mean that a year overall is inflated. The fact is, if one had let their currency sit in the bank since Jan 2022, at least 8% of the value of that currency is lost. Assuming that a fraction of a percent of inflation in a given month isn't that significant is a human failing of comprehending the long term. People shouldn't just be blowing their earnings every month. They should be at least saving some of it and maybe making some investments, in which case YoY inflation is a big deal. If one has $100,000 sitting in the bank for a year, that's around $80,000 that might as well have been set on fire because that $100,000 has less buying power. My issue with the OP wasn't this exactly, but that they were implying that news outlets are being deceptive when reporting inflation. I'm not one to defend journalism, but these articles make it pretty clear that it's YoY inflation they're referring to.

kotlin2 4y ago
What you’re saying is true, but not really related to the policy makers decision making process at the moment. If inflation were up 8.5% YoY but MoM was flat for the last three months, the tone of the conversation would be very different. The original July numbers were flat, and everyone was excited to predict the Fed pivot that would occur any day. If only…
colinmhayes 4y ago
Really disagree that news outlets make it clear that they're talking about yoy inflation. You see headlines like "inflation hit x% in august" and then they're quoting the yearly numbers. If you don't already know that inflation is measured yearly that headline is completely misleading. But the point of OP is that past inflation isn't what we should be worried about, future inflation is. Obviously the inflation we've had this year is unacceptable, but that doesn't mean inflation will continue to be unacceptable, and looking at recent monthly numbers is a better way to try to gauge future inflation than looking at yearly numbers.
ianai 4y ago
The problem with a year out projection is there are many FOMC meetings and time for markets to move around in that time. Indeed, markets can react so harshly that the Fed stops seeing the inflation they're worried about and even may start to worry about deflation - though this definitely seems highly unlikely right now. You can see this happening in the monthly cycle of market valuations being down when the market finds out about market indicators then slightly up in later periods once the market corrects its overcorrection. Ultimately modernity never saw a covid-19 before 2020 and is still in the post-reaction phase to it. 1918 happened in the midst of WWI and took several years to return to normalcy. (Notably, the 1920s were known as the "roaring 20s" until October 1929.) I wish people would review all the history of the first half of the 1900s. There were multiple depressions in the 19-00s that helped create the conditions for WWI - which then created conditions for the 1918 pandemic - which then created conditions for the euphoric 1920s (and hyper inflation in Germany?) - which then created the conditions for the Great Depression and the rise of actual, violent fascism in USSR/Italy/Nazi Germany - which of course led to WWII and so on. (Notably that period of time is not exactly 'wonderful' for the USA.) and Spain had a violent civil war in there.
- ianai 4y ago
  (to think there were many poor souls born in those early 1900s and died in WWII - never getting much of a chance to see much stability.)
- cykros 4y ago
  The early 20th century history is definitely worth knowing about, and while they didn't have the orderly monetary stimulus backed by a central bank running the printing press at full speed, they did have the far less regulated fractional reserve lending systems that had a similar effect on money supply (no margin reserve requirements, banks and brokerages competing with each other for lower rates to indefinitely rehypothecate the same assets, etc). As the saying goes, history doesn't repeat, but it does rhyme, and those rhymes could certainly be useful to see coming.
ShroudedNight 4y ago
> that's around $80,000 that might as well have been set on fire Surely this should be 8k if using 100k as baseline

galdosdi 4y ago

I'm quoting numbers from the BLS, no need to point me at the BLS. The last two months of CPI were 0.2 and 0.4 respectively. (0.2 + 0.4) * 6 = 3.6, not 7. You accidentally put a factor of 2. (yes I know multiplying by 12 to go from month to year is an approximation, but it works well)

kotlin2 4y ago
Food and energy have very high variance. The Fed uses core CPI, which excludes food and energy, as an important gauge of price changes. The data I quoted was the core CPI data (also from BLS). To use the non-core CPI numbers for the last two months is really cherry picking, especially with how much energy costs were down last month.