All dollars will be lost in time, like tears in rain. Time to die.

The Russian money frozen in the US, Europe, Japan .... was real before this action took place. This action actually revealed a frightening reality - money does not exist. There exist an "agreement" to consider some electronic records or pieces of paper as payment mean. This agreement is supported by power - the power or crude force. This power can print any amount of "money" dissolving the essence of this term. We are moving back to the physical exchange of goods and services. Dollars will be lost in time ... 

Inflation in the USA: GDP deflator in details

The most recent GDP estimates showed a 1.4 percent real GDP decline in 2022Q1. The real GDP estimate is the nominal GDP less GDP deflator, dGDP. The latter is inflation of the GDP-wide basket of goods and services. The GDP deflator is different from the CPI since late 1970 when the GDP obtained new features not included in the CPI. Figure 1 compares the CPI and dGDP cumulative inflation since 1971. The deviation of the CPI and dGDP can be well predicted by a simple linear relationship: CPI = 1.26*dGDP after 1979, and Figure 2 compares the original CPI and the corrected dGDP. The coincidence is fascinating. The CPI is dGDP times 1.26 since 1979 with small deviations at the level of the measurement error. 

Figure 1. Comparison of the CPI and dGDP cumulative inflation curves

Figure 2. CPI and corrected dGDP

Figure 3 presents the quarterly CPI and dGDP estimates since 2000. In 2022Q1, the Percent Change From Preceding Period in Prices for CPI and Gross Domestic Product is 8.9% and 8.0%, respectively. We have discussed the CPI estimates previously. 

Figure 3. Quarterly CPI and dGDP deflators

Here we present the dGDP components without special discussion. Figure 4 shows inflation in the dGDP of personal consumption expenditures, PCE. In 2022Q1, PCE inflation was 7.0%. This value is the current peak in the steep inflation growth period observed since 2020Q3.  One can expect a further increase in the PCE inflation.  

Figure 4. PCE inflation

Figure 5 illustrates inflation in Nondurable goods with the 2022Q1 value of 14.9%. This is much larger than the rise in Durable goods in Figure 6 where the peak of 16.8% was observed in 2021Q2. The Index of Durable goods has a long history of negative inflation rates between 1995 and 2020. The spike in 2020-2022 is higher than that observed in 1975Q3. 

Figure 5. Inflation in Nondurable goods

Figure 6. Inflation in Durable goods

Gross private domestic investment, GPDI, in Figure 7 is an important component of the GDP with 9.6% rate of inflation in 2022Q1. The largest inflation rate of 17.8% among the GPDI component is related to Residential investment in Figure 8. It has some potential for further growth. 

Figure 7. Gross private domestic investment

Figure 8. Residential investment

Finally (imports-exports ignored), the rate of inflation in Government consumption expenditures and gross investment reached 9.1% in 2022Q1 as Figure 9 presents. This value is just slightly higher than that related to the whole GDP. 

Figure 9. The rate of inflation in Government consumption expenditures

The rate of inflation in a single component can be larger than in all others but its influence on the total inflation depends on its share in the GDP. Figure 10 displays the evolution in the shares of the components presented in this post.  The PCE has the largest input in the GDP - 68.5%.  Other components are much smaller. 

Figure 10. Components of the GDP presented in this post. Scale in billions of dollars.