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Does it look like we are on track for 2.0% annual inflation?
Posted on December 22, 2023

The Federal Reserve signaled about ten days ago that they would not be raising interest rates in the battle to lower inflation. Most pundits conclude that the Fed will cut rates at least twice in 2024. The stock market loved this news and it’s up 3% in ten days. Are the prospects for low inflation clear? The the data for the Fed’s favorite measure on inflation, Personal Consumption Expenditures less Food and Energy components was issued this morning. The last six months point to 1.9% annual rate, and the rate for the last four months aim at a 1.6% annual rate. This is much lower inflation that I last summarized three months ago.

 

Going deeper: below I display a table and the same six graphs that I’ve use to follow the trends in inflation.

 

 

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The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation. These and most all other measures of inflation are reported at about the two-week point in the following month.

 

Seasonally-adjusted inflation increased by 0.10% in November. The rate over the last six months aims at an annual rate of 3.1%.

 

Core inflation excludes volatile energy and food components. This is similar to the measure favored by the Federal Reserve. Inflation increased by .28% in September. The last six months aim at an annual rate of 3.2%.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. It’s a chain-type index meaning the weights of components are revised during a year to more accurately reflect changes in purchasing patterns. It’s the measure reported near the end of the following month. The last six months aim at an annual rate of 1.9%. The past 12-month rate likely will decline: inflation in December and January will replace high monthly rates of a year ago.

 

 

== History of 12-month inflation ==

Full-year inflation measured by CPI-U shows that inflation for the last 12 months has been 3.1%.

 

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI over the last six months is at a 0.1%. annual rate.

 

 

== Services ==

 

The last six months aim at an annual rate of 4.3%.

 

 

 

Conclusion: The last six months of the most widely reported measures of inflation – CPI Seasonally Adjusted – aims at 3.1% annual inflation. The Federal Reserve’s favorite measure of inflation, Personal Consumption Expenditures excluding Food and Energy is a different index in that the weights of the components are revised several times during the year to more accurately reflect consumer buying patterns. The last six months aims at 1.9% annual inflation.

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