8 Charts to Show Inflation is not Dead!

Commodities are hitting new lows almost every day. Copper, nickel, oil, they have all gone down the drain. The obvious result: lowflation! In the last couple of years a major divergence has emerged between the commodity-related part of the economy (with clear spill over effects in the manufacturing industry) and the rest of the economy. The overall CPI number neatly conceals this divergence. It prevents us from seeing what is really going on. Inflation is not dead at all. At least for the other part of the economy. Here are 8 charts on US inflation.

1. Core CPI


Forget about central banks and crashing commodity prices for one minute and focus on the core CPI, instead. Without the QE hysteria and the, disproportionate, attention for notoriously volatile and, most of the time, temporary moves of food and energy prices, things don’t look that bad. Core CPI is currently at 1.9%, not much lower than the pre-2008 average. Just question yourself. Would your inflation expectations have come down much if you based those expectations solely on the realized core CPI?

2. Services CPI


If we leave out the commodity (manufacturing) part of the economy, all together, thinks look pretty normal as well. Services CPI is currently rising 2.8% YoY currently, which is again a bit lower than the average before the start of the crisis in 2008, but only just. We saw the same service CPI levels back in 2003 and 2004 and we survived without QE. In fact, in anticipation of higher inflation levels the Fed start raising rates in 2004.

3. Shelter


This major component of the consumer price index is rising 3.1% YoY, which is exactly equal to the average before 2008. If you are wondering about owner’s equivalent rent, that is rising 3.1% as well and looks perfectly normal. I saved you a chart here.

4. Cleveland Fed


Federal reserve banks are pretty resourceful when it comes to measuring inflation. Precisely because of the fact that focusing on just one overall number hides a lot of useful information. The Cleveland Fed measures median CPI by removing volatile items to give a more robust view of inflation. The median CPI was 2.5% in October. That doesn’t look dead to me.

5. Atlanta Fed


The Atlanta Fed delivers the inflation measure with the most interesting name. Its ‘sticky’ CPI equaled 2.4% in October, just below the pre-2008 average. Am I getting boring, already?

6. Atlanta Core


Why stop at one? The Atlanta Fed also puts out a core version of the sticky CPI. Also 2.4%, and also not dead.

7. Base Effects


A little math to show energy prices temporary depress inflation levels from time to time. Oil prices fell especially fast in the last few months of last year, before it stabilized somewhat. Simple base effect calculations show that the headline CPI could go up rapidly from here. UBS showed in recent research featured on Business Insider that base effects could push up headline YoY CPI by almost 2% by next February. Dead things don’t suddenly shoot up.

8. Wages


Wages are going up. Most of the time that means inflation will go up.

I could go on for a little while longer. But I think you get the message. Inflation is fine.


One response to “8 Charts to Show Inflation is not Dead!

  1. Pingback: Inflation is not dead! – Update | Jeroen Blokland Financial Markets Blog·

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