In today’s release, The overall CPI inflation rate fell sharply from 11.4% to 5.8% on an annual basis. Various indicators derived from the published data, including the sticky price CPI inflation rate-focusing on prices that do not change frequently-have fallen slightly, indicating that the pressure has eased. The CPI, excluding high volatility components, is also falling, indicating that it was not an outlier that contributed to the decline in July.
figure 1: From all cities’ CPI (blue), personal consumption expenditure (PCE) deflator (black), chain CPI (brown), sticky price CPI (green) and 16% average CPI (red), the annualized rate of inflation. Chain CPI inflation seasonally adjusted by the author. Source: BLS, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Cleveland, through FRED, and the author’s calculations.
The general discussion that emphasizes y/y changes is understandable, but frustrating, because in the current context, it actually tells almost as much of the past as it does now.
What about the core measures? The core CPI inflation rate has also fallen sharply, as shown in Figure 2 (the pruned core is not shown).
figure 2: The chain CPI (blue), the personal consumption expenditure (PCE) deflator (black), the chain CPI (brown), and the sticky price CPI (green) of the annualized inflation rate from all cities. Chain CPI inflation seasonally adjusted by the author. Source: BLS, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Cleveland, calculations from FRED, NBER and the author.
The month-on-month CPI and sticky price month-on-month inflation rate also declined. (I adjusted the unseasonally adjusted CPI chain measure by calculating the m/m growth rate, and then applied a simple seasonal adjustment using arithmetic moving average deviation.)
In other words, the easy-to-measure indicators of the monthly inflation rate are falling.
The pandemic has made it even more important to examine the role of specific components. Notice for Eastern Airlines The share of services and vehicle-related items affected by the pandemic in m/m inflation (not annualized) has fallen sharply, driving a decline in overall m/m inflation. As shown below:
source: This (8/11/2021).
