14 ms·

US annual inflation declines to 7.1% in November vs. 7.3% expected

86 points by ericliuche 4y ago

sgerenser 4y ago
"The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.1 percent before seasonal adjustment." I feel like the rise of only 0.1% October->November is more significant than the 7.1% YOY headline number, which is taking into account a lot of inflation that has already happened months ago. Of course, back in July we had a 0.0% MoM CPI increase that looked promising, but that didn't last long: https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm
- _jal 4y ago
  > I feel like the rise of only 0.1% October->November is more significant than the 7.1% YOY headline number You are correct. They always report the much more meaningless headline number. The current inflation rate is around 1.2%, well below Powell's target. Of course we've already overshot, and are still at risk of a manufactured recession. Which was the goal, workers were getting uppity and We Can't Have That.
- rhacker 4y ago
  The YoY that they report is definitely not useful during slight inflation like we're having. I wish the headlines were more about the month to month because I think people see the number and freak out that prices just went up 7.1 percent.
  - datadata 4y ago
    I think if MoM were widely reported, it would be stated as annualized to make sense for people in a headline. This would cause a lot of overreaction.
- nostrademons 4y ago
  The MoM numbers are important, but the breakdown is also important. The breakdown is worrisome - MoM declines were almost entirely driven by gas and other oil-related commodities, and we're still seeing very significant inflation in food (0.5% MoM) and shelter (0.6% MoM). Food and energy are transient (prices can go down as easily as they go up), but shelter and wages are sticky (they very rarely go down, and usually only in severe recessions. The anatomy of the 1970s recession was similar - inflation in oil had stopped by 1975, but the worst of the inflation was carried through 1977-1981 by mortgage rates, rents, and wages.
  - theptip 4y ago
    Great detail, thanks. Any suggestions for further analysis/reading on the 70s recessionary environment? Didn’t you have the black swan of the US going off the Gold Standard as a major inflationary driver at that time? Is there a similar looming inflationary pressure you see now? My (limited) model is we’re seeing some supply-side disruptions and a some hot demand from Covid stimulus, but it’s not clear to me if these drivers are likely to continue through 2023 and beyond. (I assume mostly not, with Ukraine being the big problem, but mostly for EU rather than US.)
    - nostrademons 4y ago
      My favorite paper on the subject is: https://www.nber.org/system/files/chapters/c11462/c11462.pdf https://www.nber.org/system/files/chapters/c11462/c11462.pdf I'd also encourage you to look at actual numeric data from the time period - measured CPI [1] across different categories, fed funds rate [2], money supply, etc. The data tells a very different story from the story - for one, it was neither caused by oil shocks, nor limited to the 1970s. It actually started in 1968, and the 1973 oil shock happened when the U.S. was already in recession from a Fed tightening that began in 1972 to deal with 1970's high inflation. Personally I'd attribute the cause as a series of poor decisions that were papered away by low interest rates, but which eventually compounded to devalue the currency. Vietnam took many young Americans out of the workforce and redirected production to war, Nixon pressured his Fed chief to lower interest rates, Nixon took us off the gold standard, Nixon introduced price controls (which further compounded supply issues), the oil shock hit, banks raised interest rates to compensate for inflation, which raised the cost of housing, which caused more inflation, until Volcker finally caused a massive recession and got it under control. Note also that there were multiple waves of inflation (6.2% @ 1969, 12.3% @ 1974, 13.3% @ 1979) + Fed tightening (9% @ 1970, 11% @ 1972, 13% @ 1972, 18% @ 1980, 19% @ 1981). These were effective but not persistent - in between inflation fell to 3.3% @ 1971 and 4.9% @ 1976. Even in very high-inflation years you had some months with virtually no inflation - for example July 1973 (0.1% MoM), March 1974 (0.2% MoM), July 1980 (0%). History doesn't repeat itself, but it rhymes. IMHO this was caused by having an economy that's very tightly optimized for ZIRP & globalization; introducing a pandemic that killed a million Americans, took another ~4.5M out of the workforce, and closed borders; and adding on some geopolitical black swans like the Ukraine war. Now workers need to reallocate from speculative high-margin activities like tech startups back to fundamentals like growing food and hauling trucks, and that is unlikely to happen unless the wages for truck drivers in the future exceed those of software developers now. We'll get cycles in between as the Fed tightens and loosens and causes recessions, but we don't fix the root problem until average income is ~$200K/year. [1] https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ https://www.usinflationcalculator.com/inflation/consumer-pri... [2] https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS
cheaprentalyeti 4y ago
I suspect some of this is because the level of economic activity is dropping.
- OgAstorga 4y ago
  As expected. As interest rates rise more capital that would otherwise be allocated on businesses, real estate, stocks, etcetera is redirected into safer and now more attractive bets like bonds and interest rates tied instruments
  - n8cpdx 4y ago
    It’s amazing seeing all of society stumbling towards re-learning basic economics after being in a collective fugue/mass delusion for 2020-2021. Fed discovers relationship between interest rates and inflation, more at 11.
    - standardUser 4y ago
      People have been "delusional" in a sense since the late 90's when inflation slowed to a crawl and everyone got used to stable prices. If inflation had been ~1% higher over these last decades, prices wouldn't be far off from where they are now and people wouldn't have flipped out so dramatically over the sudden adjustment.
      - runako 4y ago
        Similarly, I find myself laughing when people describe this as a high-rate environment. Or when they blame the relatively brief Covid ZIRP for wide ills. The ZIRP of the 2010s is still confusing people.
        lamontcg 4y ago
        There are 35 year olds now that were only just graduating college in 2009 (I'd argue before then most people are largely oblivious to economics) and don't know anything other than ZIRP plus the pandemic.
josephcsible 4y ago
Remember that "declines" in this context just means that prices are going up slightly slower than they were before. It doesn't mean anything's getting any cheaper.
- Wowfunhappy 4y ago
  Yes, if things were actually getting cheaper that would be "deflation" and it would probably be bad.
  - ChuckNorris89 4y ago
    Can someone please school me on why that would be bad?
    - slg 4y ago
      The simplest answer is that it discourages spending because people don’t want to buy anything today if it will be cheaper tomorrow. People not buying things is a quick way to stall the economy.
    - GenerocUsername 4y ago
      Because rich people like to make more money, not less
    - oneoff786 4y ago
      You’re incentivized to avoid spending money.
      - sprash 4y ago
        Why would that be bad?
        woodruffw 4y ago
        Because your paycheck is someone else's "spending money." Edit: Meaning that, presumably, you like being paid. So you probably don't want to incentivize being paid less, or not at all. Deflation does both of those things.
waynesonfire 4y ago
the punishment will continue until you're hurting.
- echelon 4y ago
  That's the point. Fewer dollars chasing the same basket of goods. This slows the acceleration of price increases. Once a certain threshold in the cost of money is reached, malinvestment will dwindle. In many cases, it already has. You're left with a system of dollars chasing legitimate investments.
propogandist 4y ago
once the SPR cannot be drained to manipulate gasoline costs, things will get interesting.
- actusual 4y ago
  Given your confident tone, I'm curious how you are hedging against this in the market?
  - propogandist 4y ago
    booking travel while flights are inexpensive
- philjohn 4y ago
  Seeing as oil is now around $70 a barrel, they can refill it for a profit.
  - algoatecorn 4y ago
    Refill it with oil where from where?
    - dragonwriter 4y ago
      Refilling it buying oil from the market, which they issued rules to do with the drawdown, with a specific price trigger which has just been reached.
  - propogandist 4y ago
    what do you mean “profit”? The prices won’t stay suppressed once the SPR drain stops, OPEC has no interest in keeping prices low and the current admin has been cutting US output.
    - philjohn 4y ago
      US output has increased since the current admin took over https://www.macrotrends.net/2562/us-crude-oil-production-historical-chart https://www.macrotrends.net/2562/us-crude-oil-production-his...
medo-bear 4y ago
i guess the thing in ukraine is paying off for the us. eu gives its energy shackles to an ally at a much greater cost
- jonnycomputer 4y ago
  US has benefited, no doubt, at least in the short term. But Europeans complain that we are price gouging... and in any case the whole situation encouraging an acceleration of Europe's transition to renewables.
mikewarot 4y ago
Reminder: Inflation is a vector, not a scalar. Ignore the abstraction at your own risk. Inflation is the rise in price of every single item for sale across a market, not just the "basket" of goods selected to be a good example, and subject to adjustment and correction over time. It is entirely possible that inflation that averages out to 10% for a year may double the cost of living for some people, and actually make things cheaper for others.
- mdemare 4y ago
  Please explain.
  - alexanderchr 4y ago
    It’s another way of saying that inflation has many components and that the reported number is just a mean of those, with the additional benefit that it makes you look smart.
- electrondood 4y ago
  Elaborate? The difference is direction. Are you just warning about deflation?
  - snapcaster 4y ago
    I think the comment you're responding to is more pointing out that it is made up of many different components (a high dimensional vector)
  - neuronexmachina 4y ago
    As an example, look at table A in the bls.gov release. Each column is a roughly 20-dimensional vector, with both positive and negative components. Positive components (those which had price increases in the past month) include food and shelter, while negative components include energy/gasoline, used cars, and medical care.
- crazygringo 4y ago
jalopy 4y ago
It's more helpful to look at a graph to see trends: https://fred.stlouisfed.org/graph/?g=XCAY https://fred.stlouisfed.org/graph/?g=XCAY As one can see, the CPI was fairly steep during the period from Jan 2021 till June 2022; from there it has visibly flattened. EDIT: A rolling 6 month annualized rate makes the drop pretty obvious: https://docs.google.com/spreadsheets/d/1VCEwEDWCAaWhmbosXIcDxt0Ar9fRq6e99IaxQ0bOJMI/edit?usp=sharing https://docs.google.com/spreadsheets/d/1VCEwEDWCAaWhmbosXIcD...
- boringg 4y ago
  Look at that hockey stick curve - up and to the right! It looks like the step in inflation from 2020 onwards was quite large but over the longer time horizon it looks back to a more reasonable rate. Funny to look at rising prices over the long term.
  - cableshaft 4y ago
    Zoom out to its earliest recorded data around 1945 on that chart, and the CPI inflation in the past couple of years is still clearly the fastest and steepest slope compared to all previous decades, including the 70s when overall inflation got up to 12% and the early 80s when Fed interest rates went up to over 20% to combat that inflation. Might not look as bad as when it's super zoomed in, but that still seems pretty bad (and definitely historic).
    - wwweston 4y ago
      Not sure we've ever had a supply shock quite like this one? The OPEC/energy crisis played a big role in the 70s, but that doesn't seem nearly as broad as the last two years...
- FredPret 4y ago
  Zoom way out and it looks like a nice straight line from 1980 to now

86 points by ericliuche 4y ago

"The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in November on a seasonally adjusted basis, after increasing 0.4 percent in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.1 percent before seasonal adjustment." I feel like the rise of only 0.1% October->November is more significant than the 7.1% YOY headline number, which is taking into account a lot of inflation that has already happened months ago. Of course, back in July we had a 0.0% MoM CPI increase that looked promising, but that didn't last long: https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm

_jal 4y ago
> I feel like the rise of only 0.1% October->November is more significant than the 7.1% YOY headline number You are correct. They always report the much more meaningless headline number. The current inflation rate is around 1.2%, well below Powell's target. Of course we've already overshot, and are still at risk of a manufactured recession. Which was the goal, workers were getting uppity and We Can't Have That.
rhacker 4y ago
The YoY that they report is definitely not useful during slight inflation like we're having. I wish the headlines were more about the month to month because I think people see the number and freak out that prices just went up 7.1 percent.
- datadata 4y ago
  I think if MoM were widely reported, it would be stated as annualized to make sense for people in a headline. This would cause a lot of overreaction.
nostrademons 4y ago
The MoM numbers are important, but the breakdown is also important. The breakdown is worrisome - MoM declines were almost entirely driven by gas and other oil-related commodities, and we're still seeing very significant inflation in food (0.5% MoM) and shelter (0.6% MoM). Food and energy are transient (prices can go down as easily as they go up), but shelter and wages are sticky (they very rarely go down, and usually only in severe recessions. The anatomy of the 1970s recession was similar - inflation in oil had stopped by 1975, but the worst of the inflation was carried through 1977-1981 by mortgage rates, rents, and wages.
- theptip 4y ago
  Great detail, thanks. Any suggestions for further analysis/reading on the 70s recessionary environment? Didn’t you have the black swan of the US going off the Gold Standard as a major inflationary driver at that time? Is there a similar looming inflationary pressure you see now? My (limited) model is we’re seeing some supply-side disruptions and a some hot demand from Covid stimulus, but it’s not clear to me if these drivers are likely to continue through 2023 and beyond. (I assume mostly not, with Ukraine being the big problem, but mostly for EU rather than US.)
  - nostrademons 4y ago
    My favorite paper on the subject is: https://www.nber.org/system/files/chapters/c11462/c11462.pdf https://www.nber.org/system/files/chapters/c11462/c11462.pdf I'd also encourage you to look at actual numeric data from the time period - measured CPI [1] across different categories, fed funds rate [2], money supply, etc. The data tells a very different story from the story - for one, it was neither caused by oil shocks, nor limited to the 1970s. It actually started in 1968, and the 1973 oil shock happened when the U.S. was already in recession from a Fed tightening that began in 1972 to deal with 1970's high inflation. Personally I'd attribute the cause as a series of poor decisions that were papered away by low interest rates, but which eventually compounded to devalue the currency. Vietnam took many young Americans out of the workforce and redirected production to war, Nixon pressured his Fed chief to lower interest rates, Nixon took us off the gold standard, Nixon introduced price controls (which further compounded supply issues), the oil shock hit, banks raised interest rates to compensate for inflation, which raised the cost of housing, which caused more inflation, until Volcker finally caused a massive recession and got it under control. Note also that there were multiple waves of inflation (6.2% @ 1969, 12.3% @ 1974, 13.3% @ 1979) + Fed tightening (9% @ 1970, 11% @ 1972, 13% @ 1972, 18% @ 1980, 19% @ 1981). These were effective but not persistent - in between inflation fell to 3.3% @ 1971 and 4.9% @ 1976. Even in very high-inflation years you had some months with virtually no inflation - for example July 1973 (0.1% MoM), March 1974 (0.2% MoM), July 1980 (0%). History doesn't repeat itself, but it rhymes. IMHO this was caused by having an economy that's very tightly optimized for ZIRP & globalization; introducing a pandemic that killed a million Americans, took another ~4.5M out of the workforce, and closed borders; and adding on some geopolitical black swans like the Ukraine war. Now workers need to reallocate from speculative high-margin activities like tech startups back to fundamentals like growing food and hauling trucks, and that is unlikely to happen unless the wages for truck drivers in the future exceed those of software developers now. We'll get cycles in between as the Fed tightens and loosens and causes recessions, but we don't fix the root problem until average income is ~$200K/year. [1] https://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/ https://www.usinflationcalculator.com/inflation/consumer-pri... [2] https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS

cheaprentalyeti 4y ago

I suspect some of this is because the level of economic activity is dropping.

OgAstorga 4y ago
As expected. As interest rates rise more capital that would otherwise be allocated on businesses, real estate, stocks, etcetera is redirected into safer and now more attractive bets like bonds and interest rates tied instruments
- n8cpdx 4y ago
  It’s amazing seeing all of society stumbling towards re-learning basic economics after being in a collective fugue/mass delusion for 2020-2021. Fed discovers relationship between interest rates and inflation, more at 11.
  - standardUser 4y ago
    People have been "delusional" in a sense since the late 90's when inflation slowed to a crawl and everyone got used to stable prices. If inflation had been ~1% higher over these last decades, prices wouldn't be far off from where they are now and people wouldn't have flipped out so dramatically over the sudden adjustment.
    - runako 4y ago
      Similarly, I find myself laughing when people describe this as a high-rate environment. Or when they blame the relatively brief Covid ZIRP for wide ills. The ZIRP of the 2010s is still confusing people.
      - lamontcg 4y ago
        There are 35 year olds now that were only just graduating college in 2009 (I'd argue before then most people are largely oblivious to economics) and don't know anything other than ZIRP plus the pandemic.

josephcsible 4y ago

Remember that "declines" in this context just means that prices are going up slightly slower than they were before. It doesn't mean anything's getting any cheaper.

Wowfunhappy 4y ago
Yes, if things were actually getting cheaper that would be "deflation" and it would probably be bad.
- ChuckNorris89 4y ago
  Can someone please school me on why that would be bad?
  - slg 4y ago
    The simplest answer is that it discourages spending because people don’t want to buy anything today if it will be cheaper tomorrow. People not buying things is a quick way to stall the economy.
  - GenerocUsername 4y ago
    Because rich people like to make more money, not less
  - oneoff786 4y ago
    You’re incentivized to avoid spending money.
    - sprash 4y ago
      Why would that be bad?
      - woodruffw 4y ago
        Because your paycheck is someone else's "spending money." Edit: Meaning that, presumably, you like being paid. So you probably don't want to incentivize being paid less, or not at all. Deflation does both of those things.

waynesonfire 4y ago

the punishment will continue until you're hurting.

echelon 4y ago
That's the point. Fewer dollars chasing the same basket of goods. This slows the acceleration of price increases. Once a certain threshold in the cost of money is reached, malinvestment will dwindle. In many cases, it already has. You're left with a system of dollars chasing legitimate investments.

propogandist 4y ago

once the SPR cannot be drained to manipulate gasoline costs, things will get interesting.

actusual 4y ago
Given your confident tone, I'm curious how you are hedging against this in the market?
- propogandist 4y ago
  booking travel while flights are inexpensive
philjohn 4y ago
Seeing as oil is now around $70 a barrel, they can refill it for a profit.
- algoatecorn 4y ago
  Refill it with oil where from where?
  - dragonwriter 4y ago
    Refilling it buying oil from the market, which they issued rules to do with the drawdown, with a specific price trigger which has just been reached.
- propogandist 4y ago
  what do you mean “profit”? The prices won’t stay suppressed once the SPR drain stops, OPEC has no interest in keeping prices low and the current admin has been cutting US output.
  - philjohn 4y ago
    US output has increased since the current admin took over https://www.macrotrends.net/2562/us-crude-oil-production-historical-chart https://www.macrotrends.net/2562/us-crude-oil-production-his...

medo-bear 4y ago

i guess the thing in ukraine is paying off for the us. eu gives its energy shackles to an ally at a much greater cost

jonnycomputer 4y ago
US has benefited, no doubt, at least in the short term. But Europeans complain that we are price gouging... and in any case the whole situation encouraging an acceleration of Europe's transition to renewables.

mikewarot 4y ago

Reminder: Inflation is a vector, not a scalar. Ignore the abstraction at your own risk. Inflation is the rise in price of every single item for sale across a market, not just the "basket" of goods selected to be a good example, and subject to adjustment and correction over time. It is entirely possible that inflation that averages out to 10% for a year may double the cost of living for some people, and actually make things cheaper for others.

mdemare 4y ago
Please explain.
- alexanderchr 4y ago
  It’s another way of saying that inflation has many components and that the reported number is just a mean of those, with the additional benefit that it makes you look smart.
electrondood 4y ago
Elaborate? The difference is direction. Are you just warning about deflation?
- snapcaster 4y ago
  I think the comment you're responding to is more pointing out that it is made up of many different components (a high dimensional vector)
- neuronexmachina 4y ago
  As an example, look at table A in the bls.gov release. Each column is a roughly 20-dimensional vector, with both positive and negative components. Positive components (those which had price increases in the past month) include food and shelter, while negative components include energy/gasoline, used cars, and medical care.
crazygringo 4y ago

jalopy 4y ago

It's more helpful to look at a graph to see trends: https://fred.stlouisfed.org/graph/?g=XCAY https://fred.stlouisfed.org/graph/?g=XCAY As one can see, the CPI was fairly steep during the period from Jan 2021 till June 2022; from there it has visibly flattened. EDIT: A rolling 6 month annualized rate makes the drop pretty obvious: https://docs.google.com/spreadsheets/d/1VCEwEDWCAaWhmbosXIcDxt0Ar9fRq6e99IaxQ0bOJMI/edit?usp=sharing https://docs.google.com/spreadsheets/d/1VCEwEDWCAaWhmbosXIcD...

boringg 4y ago
Look at that hockey stick curve - up and to the right! It looks like the step in inflation from 2020 onwards was quite large but over the longer time horizon it looks back to a more reasonable rate. Funny to look at rising prices over the long term.
- cableshaft 4y ago
  Zoom out to its earliest recorded data around 1945 on that chart, and the CPI inflation in the past couple of years is still clearly the fastest and steepest slope compared to all previous decades, including the 70s when overall inflation got up to 12% and the early 80s when Fed interest rates went up to over 20% to combat that inflation. Might not look as bad as when it's super zoomed in, but that still seems pretty bad (and definitely historic).
  - wwweston 4y ago
    Not sure we've ever had a supply shock quite like this one? The OPEC/energy crisis played a big role in the 70s, but that doesn't seem nearly as broad as the last two years...
FredPret 4y ago
Zoom way out and it looks like a nice straight line from 1980 to now