US Inflation Reaches 7%. Now What?

US Inflation Reaches 7%. Now What?

US consumer prices rose more than expected last month, hotly anticipated data showed. Headline CPI surged 7% YoY in December (figure below), the most in decades. While that merely matched consensus, the MoM print, at 0.5%, was hotter than the 0.4% increase economists projected. The range, from more than five-dozen forecasters, was 0.2% to 0.6%. Core prices came in hot too, rising 5.5% YoY, against estimates for a 5.4% gain. MoM, the core gauge rose 0.6%. Economists expected a 0.5% increase.
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8 thoughts on “US Inflation Reaches 7%. Now What?

  1. “Headline CPI surged 7% YoY in December (figure below), the most in decades. While that merely matched consensus, the MoM print, at 0.5%, was hotter than the 0.4% increase economists projected.”

    I have never understood how it’s possible for the YoY and MoM to miss by different amounts. We know the prior month’s prices. We know the prior year’s prices. We forecast the current month. If forecast misses by 0.1%, shouldn’t that be true of both the MoM miss and the YoY?

    1. Although I am not and expert I believe it may have something to do with the nature of the changes in underlying prices. The CPI, for example, is an index comprising many different elements, each of which is weighted to reflect its importance. If one or two elements change in one part of the year and then others change more later, this could change the comparisons. The index comes from the prices of 80,000 items, grouped into 7776 area/item combinations. The BLS.gov website has details.

    2. The percentages are calculated with different denominators and the same numerator. This would make a good SAT question. CPI surged 7% YoY and 0.5% MoM. What was last month’s CPI growth relative to last year’s CPI? (Answer: 6.47%)

      1. Very good. But given that 6.47% is a statistic known to forecasters in advance, how is it possible they forecast 7% YoY (correctly) but 0.4% MoM (incorrectly. Since it’s the same numerator, it should give proportional forecasting error of similar size and magnitude, should it not?

  2. Here is another take on the year end ‘financial state of affairs’ communication from Federal government/Fed to the American people:
    2021- what a year!
    Hope you enjoyed your minimum wage increases- sorry about the fact that the buying power of any increases was more than obliterated by inflation. We are, however, pleased to report that we are making great progress in inflating away the existing $29.7T we have previously borrowed. Never mind that there is not much benefit from that to you today. But it will make things better (maybe) for your children’s children. Or maybe their children. For now, we are going to ignore the fact that you are having less children because you can’t afford them. Stay tuned, we will have more to say on that at an undetermined later date, as US government-sponsored ‘adoption-from-abroad’ programs are in the works, as we might be short a few workers.
    Luckily, we have also made it possible for you to borrow in order to continue to spend/pay rent/eat food due to record low interest rates. However, we regret to inform you now that your credit card/debt balances are rising, short term interest rates will also be going up in 2022. Plan accordingly!
    All in all- not too shabby. Hope you agree (fyi- we have activated the “no-reply” function on this email communication).
    All the best to you in 2022…..And don’t forget to get vaccinated/boosted and to vote.
    We’ve got your back!

  3. H-Man, I saw Kevin Muir had a post in Bloomberg that was a good take on the Fed and rates. You use to post some of his musings, has he gone to your dark side ? I liked his pointed “here is where my money is going”.

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