The overall CPI significantly exceeded expectations, with a month-on-month ratio of 0.9%, while the expected 0.6%. The core is 0.6%, while the expected 0.4% (Bloomberg consensus). The persistence of the gap will largely depend on the evolution of oil prices. The last time a year-on-year core game level appeared was in 1991; but it is still much lower than in the 1970s.
figure 1: CPI quarter-on-quarter inflation (blue), quarter-on-quarter CPI (brown), core CPI (green), and personal consumption expenditure deflator (red). Use X-12/ARIMA X-11 for seasonally adjusted chain CPI. The PCE deflator in October is now predicted to be 11/10. The recession date (peak to trough) defined by NBER is shaded in gray. Source: U.S. Bureau of Labor Statistics, Bank of East Asia, Cleveland Federal Reserve, NBER and author’s calculations.
There is a large gap between CPI and core CPI, and the role of energy prices is prominent. This is reflected in the level.
figure 2: CPI (blue), chain CPI (brown), core CPI (green), personal consumption expenditure deflator (red). Use X-12/ARIMA X-11 for seasonally adjusted chain CPI. The PCE deflator in October is now predicted to be 11/10. The recession date (peak to trough) defined by NBER is shaded in gray. Source: U.S. Bureau of Labor Statistics, Bank of East Asia, Cleveland Federal Reserve, NBER and author’s calculations.
Since M02 in 2020, the core CPI has lagged behind the CPI by 1.3 percentage points (logarithmic calculation). The source of the difference is clear:
image 3: Title Core CPI year-on-year inflation difference (blue, left scale), and oil price (WTI) year-on-year growth rate (tan, right scale). NBER defines the date of decline (peak to trough). Source: BLS, NBER, author’s calculations.
This largely depends on the overall trend of oil prices and energy prices. So far, oil prices are at a discount, with the recent (December) futures at 81.44 and March futures at 77.67.
One final point: before comparing with the 1970s, it is useful to have a longer-term perspective.
Figure 4: CPI year-on-year inflation (blue), month-on-month CPI (brown), core CPI (green), and personal consumption expenditure deflator (red). Use X-12/ARIMA X-11 for seasonally adjusted chain CPI. The PCE deflator in October is now predicted to be 11/10. Source: U.S. Bureau of Labor Statistics, Bank of East Asia, Cleveland Federal Reserve, And the author’s calculations.
