Inflation is here there and everywhere

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by Shaun Richards

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

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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.

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