One of the issues when we look around at economic debates is the way that the goal posts are shifted and in fact some move so much they are clearly the version which come on wheels. This has been demonstrated by the inflation debate which has progressed with plenty of creaking from the wheels as the posts are moved. Let me demonstrate from the Federal Reserve Minutes from its 2021 meeting.
The 12-month changes in total and core PCE prices in
coming months were projected to briefly move above
2 percent in the second quarter of 2021 as the unusually
low observations from the spring of 2020 drop out of
the 12-month calculation. Following these swings, inflation was expected to finish the year at just below 2 percent.
There is already an attempted swerve in there via the use of core prices but that has been swamped by the move. The briefly move above and then swing lower has morphed into this reality.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in September on a seasonally adjusted basis after rising 0.3 percent in August, the
U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment. ( US BLS)
This is from yesterday and as to what has become called “Team Transitory” who in a manner similar to General Custer are still trying to win at Little Big Horn, it was yet another disappointment Another month where already inflated prices rose by a number way ahead of the inflation target.
We need to adjust our numbers because the Federal Reserve targets the PCE index because it gives a lower number. At the moment around 1% lower but when we make the shift we see that at 4.4% we have inflation more than double what was promised and indeed it is lasting for longer too.
Team Transitory saw an opportunity in the detail of yesterdays release.
The energy index rose 24.8 percent over the last 12
months, and the food index increased 4.6 percent over that period.
I mean who has to pay them? Well apart from pretty much everyone that is. But in that world they claim to have won.
U.S. core CPI inflation excluding shelter down for a third straight month in September on a year-over-year basis ( @boes )
If you do not need to eat use energy or live anywhere perhaps they sort of are but best of luck with that. Also that is not certain and on their track record if it does not turn out they will just fly like Magpie’s to something else on the route to this.
Team transitory won btw. ( @peakes )
This was achieved by looking at core inflation only and then further torturing the numbers via using a two-month average that was also annualised. They must have been screaming in pain.
As a final point you may note that @boes of Bloomberg had added the largest component which just happens to be showing accelerating inflation to his list of exclusions.
Speaking of that largest category let us remind ourselves of what the US CPI ignores.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 19.7% annual gain in July, up from 18.7% in the previous month. The 10-City Composite annual increase came in at 19.1%, up from 18.5% in the previous month. The 20-City Composite posted a 19.9% year-over-year gain, up from 19.1% in the previous month.
Euro Area
Earlier this week there was this from Germany.
WIESBADEN − The inflation rate in Germany, measured as the year-on-year change in the consumer price index (CPI), stood at +4.1% in September 2021. In July and August 2021 it had been just under 4%. A higher inflation rate was last measured in December 1993 (+4.3%).
There was a potential glimmer for Team Transitory in that the monthly rise was zero. Although they were rather quiet as even they know what is coming next in this area.
The prices of natural gas (+5.7%) and electricity (+2.0%) rose, too.
As you see it is a big deal in Germany.
Energy costs have weight of 10.7% in inflation basket, higher than anywhere else ( @Schuldensuehner )
All the previous numbers ignore this issue which is from the category that has the largest expenditure for most.
WIESBADEN – In the second quarter of 2021, the prices of residential property (house price index) in Germany rose an average 10.9% year on year. This was the largest price increase recorded for residential property transactions since the beginning of the time series in the year 2000.
This morning the drum and bass section for inflation moved to Spain and not just for some sun.
In September, the annual variation rate of the HICP stood at 4.0%, seven tenths above that registered the previous month. The monthly variation of the HICP is 1.1%.
In Spain as we have looked at before energy prices are already hitting workers and consumers hard. So hard in fact that the government has stepped in.
For its part, the HICP at Constant Taxes (IPCA-IC) presents an annual rate of 4.4%,
four tenths more than the IPCA.
The monthly variation rate of the HICP-IC is 1.2%.
As you can see they have reduced the inflation rate by 0.4% with this tax cut for which the ECB must be very grateful. Perhaps the Spanish politician ( Vice-President De Guindos) was in contact with his former colleagues.
Producer Prices
This issue was highlighter earlier by the world’s largest population.
The producer price index (PPI) rose 10.7% from a year earlier in September, the National Bureau of Statistics (NBS) said on Thursday, the biggest rise since the bureau started compiling the data in 1996. Economists in a Reuters poll had expected a 10.5% rise, after a 9.5% increase in August.
Producer prices have risen due to output curbs caused by a power crunch at a home and a months-long global commodity price rally. But Chinese businesses have been reluctant to pass on the higher costs to local customers due to already soft orders. ( Reuters)
And also next on the list as we travel to New Delhi.
The annual rate of inflation is 10.66% (Provisional) for the month of September, 2021 (over September, 2020) as compared to 1.32% in September, 2020. The high rate of inflation in September 2021 is primarily due to rise in prices of mineral oils, basic metals, non-food articles, food products, crude petroleum & natural gas, chemicals and chemical products etc as compared the corresponding month of the previous year.
Comment
A feature of any inflationary burst is the enthusiasm from some to find numbers which tell you there isn’t any. This usually starts with core inflation has moved into excluding shelter as well, in fact anything which is going up in price. To this can be added mathematical manipulations such as annualising 2 month moves. The numbers from Spain illustrate a new front in a way as the burden is shifted off the inflation numbers to some extent via tax cuts. It is a type of magic trick as the consumer and the taxpayer ( who is no footing the bill) are usually the same person.
In fact they end up arguing there should only be a response if wages rise which means they are singing along with Kylie.
I’m spinning around, move out of my way
I know you’re feeling me ’cause you like it like this
I’m breaking it down, I’m not the same
I know you’re feeling me ’cause you like it like this
They claim to have made you better off but are sticking their fingers in their ears when people face the inflation they helped to create because they do not want that subtracted from their policy claims. Thus by this rather perverted logic you are being made better off by real wage falls.
Meanwhile if we look at inflation it is a succession of price moves and of course some will be rising and others fading. Even energy will eventually fade ( hopefully) but in Europe some will be seeing bills that have doubled and will thus be poorer. That is the problem. Yet the establishment do not want to face up to reality. You see an issue in the energy price crisis in the UK is that went too big on wind farms which make the grid unstable by the variable nature of wind. What has the UK government learned from this?
The Biden administration wants to build seven major offshore wind farms on the East and West coasts and in the Gulf of Mexico. It’s part of President Biden‘s plans to deploy enough offshore farms by 2030 to power more than 10 million homes. ( Associated Press )
How many homes will it power on a still day? Shifting to today’s theme more inflation will be on the way as he have extreme cost ( offshore wind farms) colliding with variable output. I wish them better luck than the UK so far in 2021.
Notayesmanseconomics's Blog 
Shaun, too right it is! I was surfing in Polzeath his summer and I paid £4.20 for a single cone ice-cream.
Hi Paul C
That sounds expensive even with my Central London hat on….
Hello Shaun,
well it does seem competence has been sacrificed doesn’t it? from the CPI , creative price index , a measure designed to hide inflation by using any metric that is lower , even to the point of leaving life costs out ( shelter, fuel , etc ) . I predict it will be altered to show no inflation at all but by then nobody except a few will being buying “consumer” goods .
As for energy policy we have already been told it’s based on “hope” . Again a metric was used to make it look good , capacity not delivery , with added carbon taxes to natgas and coal to amke it look good . The practical upshot has been a sky rocketing energy prices, not cheaper as promised by the “Green Energy” revolution .
And the good purpose ? Save the Planet ? How? when China has said it will build MORE coal fired power stations to make up for it’s electricity shortage ! ( I know this is a touchy subject but why are we allowing settlers in when each adds 12.7 tonnes of CO2 ? For consistancy sake you’d have thought we’d have a steady population target ( of who ever ) , if we did a Net Zero policy there we’d gain about 1.5 million less population , wouldn’t that help with carbon targets? ).
If we’re short of people perhap we should use more AI and robotics and really be in the 4th industrial revolution instead of what appears to be a ” buy it in ” plan .
oh well , the sun is shining and the wind is slight ( fickle fuel supply issue again ) so lets go shopping to save the economy ( but stuff the planet 😉 ) heh!
Forbin
On your AI point, there is a reason why self driving trucks are such a big deal. We have a shortage of drivers. Pushing AI into that space is hardly likely to encourage people to decide to retrain in that area as they will be worried about losing their jobs.
Care of the elderly is becoming more and robotic in Japan. It pays badly and always will do even though it is supposedly valued at a societal level.
forbin,
“If we’re short of people perhap we should use more AI and robotics and really be in the 4th industrial revolution instead of what appears to be a ” buy it in ” plan .”
In 2018 Carney warned of millions of job losses as robot technology took off but it doesn’t seem to be happening. Many europeans have gone back home which has caused a shorfall but I think there have been new job openings in some areas which has excerbated the jobs shortage.
As an example more people have been buying online and having meals delivered I am wondering whether Joe Public has gotten lazy and decided to live on take away food to save cooking for themselves?
In the UK inflation is starting to worry the public due to a recent poll and 60% of working adults already cut their spending, many worried about the possibility of interest rate rises.
https://www.dailymail.co.uk/news/article-10091177/Poll-finds-60-working-age-Brits-cut-spending-amid-cost-living-crisis.html
With all the billions thrown at the economy through furlough and other meassures there was always going to be pay back and pain come later on.
the billions could be parked in bonds
its a political choice to raise taxes and IR , not an economic one as such
its politics that we have such low rates to prop up the government for example.
Or even bonds that encourage people to save via NSI.
yah , raised the ceiling to £100K and a rate of 1.5-2.5 % should make an impact
not that I think our government have the brains to do that from past results
Thank you for your very interesting link, Peter. The Daily Mail seems to be conflicted in its use of charts. It shows a totally unnecessary pie chart to convey the simple message that 60% of working age adults have cut spending over the last month. No chart required. You would think they were obsessed with pie charts, but this is immediately followed by a four-category bar chart showing responses to the question “Are you worried about being able to pay the mortgage?” Here the use of a chart is justified. The same data could have been presented as a pie chart, but the bar chart presentation is more effective. The Daily Mail should cease to be conflicted, and simply eliminate pie charts altogether. Their use was forbidden a long time ago by the Australian Bureau of Statistics.
Shaun,
Wolf St blog reporting social security COLA (Cost Of Living Allowance) for US seniors now 5,9% highest since 1982. So nflation now apparent. Even with wheezes such as asking house owners what their homes would rent for ignoring higher actual rent rises plus hedonic quality adjustments for new vehicle prices etc. Central Bank credibility now transitory?
Hi Chris
At least they are getting a decent increase which hopefully will maintain some sort of purchasing power. For me they lost it along the way.
1. We still have the emergency measures
2. The Transitory claims were really only to buy time.
3. House price pumping….
Great blog as usual, Shaun.
As John Astin’s book “Measuring EU Inflation: The Foundations of the HICP” reminds us, the HICP was developed so different countries would have comparable inflation measures, so when reporting on US inflation, I think you should have also mentioned, the much higher inflation numbers generated by the US HICP for the total US population. (This is more comparable with the UK CPI and the MUICP, the HICP for the euro area, than the US HICP for the urban population.) In September the US HICP had an inflation rate of 6.22%, up from 6.14% in August. (Yes, I know these estimates are not accurate to two decimal places, but this is what is displayed on the BLS worksheets.) For the core US HICP measure (i.e. all items less food and energy) the September inflation rate was 4.56%, down slightly from 4.68% in September. This is so far above the UK and euro area HICP inflation rates it is out of sight.
No-one pays me to do this, so I really can’t afford to make a detailed analysis of why the US HICP inflation rate is so much higher the US CPI-U rate, but one obvious factor is the omission of owner’s equivalent rent from the US HICP. Its September inflation rate in the US CPI-U was just 2.9%. (Although much lower than the 5.4% inflation rate for the overall CPI-U, it is telling that even this component, which can’t be much affected by shipping problems in China, is registering an inflation rate substantially above the US Fed’s 2% target.) The omission of equivalent rent from the US HICP also explains why there is a more dramatic drop in inflation when one goes from the overall index to the core index. Energy, with its double-digit inflation rate in September, has a much bigger impact on the overall HICP than it does on the US CPI-U.
The US HICPs only have their baskets updated biennially, like the US CPI-U, but contrary to the annual basket updates mandated by Eurostat. (Unless I missed it, John makes no mention of this in his book.) While this would tend to exaggerate the differences between the inflation rates for the US HICP and the UK CPI, the difference would be slight, in the realm of 0.1 percentage points or less.
Hi Andrew and thank you
I can only hold my hand up because John made that very point about HICP on Monday at the book launch. As to the gap I am sure you are right about Imputed Rents and I also would expect energy to be in there as the fact that it does not have around 24% of the index on Imputed Rents other weights will be higher.
Eurostat also updates the numbers but is behind your spreadsheet as it is only up to July.
I’m still very much in the transitory camp and a nasty bout of stagflation is approaching. Markets will will adjust to the supply issues but what we can’t guess is just how stupid the government response will be. Sunak is dangerous as he believes the ridiculous notion that the state should balance it’s books (they always balance to the penny) and I don’t think the £20 UC cut and rising leccy bills will help demand all that much, lunacy.
The two big ticket items we can’t fix are rising house prices, as every central bank in every developed country depends on them and energy because we’re about 20 years behind because we failed to invest in one last generation of nuclear. Gas markets will normalise if we’re nice to the Russians I suppose but who knows if that will happen.
Then there’s the Covid unknown given the UK had more new cases in a day than every other EU country combined. The incompetence of this government knows no bounds and we’d have been a thousand times better off with a Corbyn administration. That’s my tuppence worth.
Not ‘and ‘ in the first sentence should be ‘although’ 😦
Hi bill
The problem with the Transitory argument to my mind is threefold.
1. They abandoned past central banking practice
2. It was obvious there would be price rises
3. They are looking ever longer lasting….
https://www.bbc.co.uk/news/business-58895250
Mr Boparan is correct, chickens were a fiver ten years ago/
I remember you got two of them at TESCO for that.
Hi therrawbuzzin
The bit that catches my eye is the energy price rises. I guess the BBC does not want to tell us the cause of them….
So, with other inflation all around us, how high does the interest rate have to be before ordinary people start losing their homes.
THIS is the roll-out of the great reset.
its a dynamic between time and rates so I’d post a WAG of 2% for upto two years .
Putting up interest rates will make inflation go up in a modern economy, Fisher was and is right.
Haven’t you noticed?
Hi Shaun, NZ CPI for September indicates the annual inflation rate is 4.9%
The highest since 1987, I believe
Apparently building materials and local authority Rates are to blame
Apologies for being late to comment.