As we predicted, CPI inflation much below the forecasted by WSJ. FOMC to reconsider the tomorrow's decision

The current fall in the CPI inflation is down to 7.1% per year and +0.1% in November relative to October 2022. This is much lower than the expected +0.3%, which would mean 7.3% during the past 12 months. I was not too optimistic about waiting for the figures below 7.0%. The 0.1% difference is within the measurement uncertainty and may change in the following revisions. Figure 1 presents the comparison of the PPI (Final Demand) and CPI inflation rates.

The faster-than-expected fall in the CPI inflation will change the FOMC consideration tomorrow. 

Figure 1

New PPI data indicate the possibility for the CPI inflation to drop below 7% per year in November

The BLS released new PPI data showing the drop in the inflation rate of PPI for final demand from 8.1% in October to 7.4% in November. The (seasonally adjusted) PPI increased from 140.637 in October to 140.795 in November. Figure 1 compares the PPI inflation with that of the CPI. One can see that the two curves started to diverge in 2020. The PPI curve demonstrates a fast fall since 2022Q1 when it reached its peak of 11.6%. The CPI curve started to fall in July and currently chasing the PPI curve as it falls below the zero line. The BLS will release the CPI data on Dec 13. The expected value of the CPI inflation for the 12 months that ended in November is below 7% with the October level of 7.8%. 

Figure 1. Comparison of the CPI and PPI (FD) inflation rates after 2010

A significant drop in the annual CPI inflation rate is expected in the USA

The annual CPI inflation rate is defined by the total change in the Consumer Price Index and the CPI value one year ago. With growing CPI, a constant annual change in the CPI produces decreasing inflation rate due to the increasing denominator. The jump in the CPI ( see Figure 1) from August 2021 to May 2022  produced a dramatic surge in the inflation rate (Figure 2). The inflation increase in the first quarter of 2021 was related to the drop in the CPI and the corresponding fall in the inflation rate denominator in the first quarter of 2021.

Figure 1. The CPI in the USA between January 2015 and October 2022. 

Figure 2. CPI inflation rate in the USA

As we mentioned in our previous posts (here and here), the CPI evolution during the COVID-19 pandemic is driven by printed ("helicopter") money - several trillions of dollars poured into the US economy in 2020 and 2021. The consumer prices just accommodated the money in a price level increase. The lag behind the money insert and the CPi reaction is approximately one year and Figure 3 repeats the same picture in the previous post from Nov 13.  In Figure 3, one can see that the monthly CPI inflation rate for Nov 2022 should drop and the annual inflation rate has to fall as well. 

Figure 3. The current CPI (blue dots) was delayed by approximately 1.25 years behind the money injection. The shifted CPI (red dots) is synchronized with the money injection as expressed by the Personal Income.  In the near future (likely in 2023Q1-2), the CPI will fall below the zero line.

Figure 4 presents the difference in the CPI annualized inflation rates: current and 12 months ago. This difference indicates the trend in the CPI inflation evolution. The negative values mean that the CPI inflation falls as was observed between July and October 2022. The estimate for November 2022 will be released by the BLS on Dec 13. The trend in Figure 4 indicates that the CPI inflation will drop below 7% and this means that the FOMC will retain the overnight rate rather than increase it by 0.75 percentage points. The trend will extend into 2023 as all printed money is fully accommodated by the CPI and there is no pressure left to inflate the babble. In 2023, deflation is coming as the Personal Income falls below its long-term average.   

Figure 4. The difference in the CPI annualized inflation rates: current and 12 months ago.

Grim labor statistics in the USA

Despite the increase of 263,000 in total nonfarm payroll employment in November, the seasonally adjusted household labor estimation are all negative. 

The total civilian noninstitutional population increased by 173,00 from 264,535,000 to 264,708,000, but the civilian labor force fell by 186,000 from 164,667,000 to 164,481,000.  The number of employed also fell from 158,608,000 to 158,470,00 (-138,000).  The employment/population ratio also fell by 0.1% from 60.0% to 59.9% (60.1% in September). The labor force participation rate decreased by 0.1% from 62.2% to 62.1%  (62.3% in September 2022, and 61. 9% in November 2021. Finally, the population 'not in the labor force' increased from 99,868,000 to 100,227,000 (+359,000). 

The long-term decrease in the most important labor characteristics continues. This is insane to say that the unemployment rate is lower than in April 2000 when the labor force participation rate fell from 67.3%  in April 2000 to 62.1% in November 2022. This is 5.1% of the current civilian noninstitutional population or ~13,000,000. Currently, the number of unemployed is ~6,000,000. 

"Старинные психопаты" Н.С.Лескова и Эпштейн/Максвелл

Рассказ Лескова "Старинные психопаты" тяжело читать и остается чувство безотчетной темной тревоги. История эта случилась очень давно. 

Сегодня перечитал начало и понял его по-новому.

"Степан Иванович был атлет и богатырь, а притом также хлебосол, самодур и преужасный развратник, но имел образование. Он был одним из тех молодых людей, которых императрица Екатерина посылала в Англию «для просвещения ума и сердца».

По возвращении из Англии он поступил на службу в конногвардейский полк, но как только дослужился до чина поручика — вышел в отставку, женился на тверской дворянке, девице Степаниде Васильевне из рода Шубинских, и поселился в Москве в собственном доме.

Делать Вишневскому здесь было нечего, и он начал «чудить».

Прежде всего он надумал импонировать москвичам своей хохлацкой «нацыей». Он не хотел никого знать — одевался по-хохлацки, много пил «запридуху» и ел, будто, одно только медвежье мясо." 

Поведение пары Эпштейн/Максвелл и связанных с ним персонажей повторяет историю Лескова в ужасных подробностях.