Reuters- “U.S. consumer prices are the largest increase in 13 years; inflation may have peaked”. There are surprises, put in context. Excluding the volatility component, inflation has risen; focus on sticky prices, inflation has fallen.
The CPI was unexpectedly 0.4%, while the core CPI was 0.43% (relative to yesterday’s Bloomberg consensus). Putting these in context, the variability of (log) CPI and core CPI’s m/m change is about 0.2%.
figure 1: CPI All Cities (Thick Blue Line), Bloomberg Consensus (Blue+), 2016-19 Stochastic Trend (Blue-Gray Line), CPI Reduction in Food and Energy (“Core”), (Dark Red Bold), Bloomberg Consensus ( Red square) and 2016-19 random trend (red gray line), both use logarithmic scale. Source: BLS, Bloomberg and author’s calculations.
In addition, as shown in the graph above, the price level as of June is higher than the linear trend of 2016-19.
On the other hand, although overall inflation has risen compared to the previous month, the indicator that focuses on the infrequent price—sticky price CPI—has fallen, indicating that the pressure has eased. On the other hand, in the CPI that excludes high volatility components, CPI continues to rise.
figure 2: 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. Source: BLS, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Cleveland, through FRED, and the author’s calculations.
What about the core measures? These are shown in Figure 3 (the trimmed core is not shown).
image 3: 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. Source: BLS, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Cleveland, through FRED, and the author’s calculations.
The pandemic has made it even more important to examine the role of specific components. Notice for Eastern Airlines Excluding “cars and services affected by the pandemic, core inflation rose by 0.22% month-on-month, compared with 0.28% and 0.31% in May and April, respectively”. As shown below:
source: This (7/13/2021).
