Inflation is *Not* What We Should Be Worried About
Dave Henderson responds to an article called "If There's No Inflation, Why are Prices Up So Much?":
...the main thing he does in the ... article is look selectively at relative prices that have increased a lot...
I had started a response to the same article a couple of days ago, and then decided to let it go. But I may as well resurrect it. As noted, the article looks selectively at a few prices that have gone up a lot, and then asks "why haven’t these more rapid increases shown up in the Consumer Price Index?" They have, but they are offset by falling prices elsewhere. This is easy to see in the underlying data.
This is the PCE rather than the CPI, but the story is the same (this is what the Fed monitors, and it's a better measure to look at anyway -- I used month-to-month data because it seems like the article used a similar measure -- year over year is less volatile, but again the story is basically the same). Shown below is a list of the inflation rates for the individual components that make up the PCE (the changes are from December to January, the latest data available). Notice how many prices of the goods and services consumed by a typical household fell on a month-to-month basis. You rarely hear people talking about how well they made out due to falling prices, but you hear a lot --- see the article -- about prices that are going up (the overall month-to-month figure, where prices are weighted by their share of a typical consumption basket, was 0.2 percent, i.e. less than one percent -- that means price increases and price decreases nearly canceled each other out).
Despite scare stories in the media about all the hidden inflation, it's just not there. Thus, there's no reason for the Fed to start raising interest rates to combat this phantom threat. If inflation (or the threat of inflation) does kick-up, we'll have to balance the costs of higher than expected inflation with the costs of fighting it and prolonging the recovery of output and employment -- even then, relative to a moderate outbreak of inflation I think unemployment is the more important problem to address -- but presently it's not a close call at all. Alleviating unemployment and all the struggles that come with it ought to be our top priority.
[Note: The entries marked in yellow are the trim points for the Dallas Fed's trimmed mean estimate of the inflation rate (which is similar to excluding food and energy). Inflation was 1.3 percent from December to January according to the trimmed-mean measure (excluding food and energy gives an estimate of 1.8 percent). People usually complain that trimming volatile prices from the inflation measure hides inflation that hits households, e.g. it hides increases in the price of gas. But in this case excluding volatile prices such as food and energy increases the measured inflation rate from .2 percent to either 1.3 percent or 1.8 percent depending on which prices are excluded. The very first entry in the table helps to explain why.]
Component | Annualized 1-month % change |
PCE: Gasoline & Other Motor Fuel Price Index | -32.7 |
Personal Consumption Expenditures: Clothing Materials Price Index | -30.9 |
Personal Consumption Expenditures: Sewing Items Price Index | -30.9 |
Personal Consumption Expenditures: Commercial Banks Price Index | -26.1 |
Sales Receipts: Foundatns/Grant Making/Giving Svcs to HH Price Idx | -25.8 |
Personal Consumption Expenditures: Eggs Price Index | -21.0 |
Personal Consumption Expenditures: Photographic Equip Price Index | -20.4 |
Personal Consumption Expenditures: Natural Gas Price Index | -18.7 |
Personal Consumption Expenditures: Fresh Fruit Price Index | -18.6 |
PCE: Film & Photographic Supplies Price Index | -15.7 |
PCE: Othr Depository Instns & Regulated Invest Companies Price Idx | -12.8 |
PCE: Sporting Equip, Supplies, Guns & Ammunition Price Index | -12.0 |
PCE: Employment Agcy Services Price Index | -10.3 |
PCE: Computer Software & Acc Price Index | -10.0 |
PCE: Net Health Insurance Price Index | -9.5 |
Personal Consumption Expenditures: Tires Price Index | -9.2 |
PCE: Personal Computers & Peripheral Equip Price Index | -8.2 |
Personal Consumption Expenditures: Other Meats Price Index | -8.1 |
Personal Consumption Expenditures: Furniture Price Index | -7.5 |
PCE: Household Cleaning Products Price Index | -7.3 |
Personal Consumption Expenditures: Fats and Oils Price Index | -7.2 |
PCE: Coffee, Tea & Other Beverage Mtls Price Index | -7.1 |
PCE: Children's & Infants' Clothing Price Index | -7.0 |
Personal Consumption Expenditures: Nursing Homes Price Index | -6.8 |
PCE: Mineral Waters, Soft Drinks & Vegetable Juices Price Index | -6.7 |
PCE: Moving, Storage & Freight Services Price Index | -6.5 |
PCE: Hair/Dental/Shave/Misc Pers Care Prods ex Elec Prod Price Idx | -6.0 |
PCE: Elec Appliances for Personal Care Price Index | -6.0 |
PCE: Motor Vehicle Leasing Price Index | -6.0 |
Personal Consumption Expenditures: Cereals Price Index | -5.9 |
PCE: Flowers, Seeds & Potted Plants Price Index | -5.8 |
Personal Consumption Expenditures: Fresh Milk Price Index | -5.4 |
PCE: Food Products, Not Elsewhere Classified Price Index | -5.2 |
Personal Consumption Expenditures: Window Coverings Price Index | -5.1 |
Personal Consumption Expenditures: Wine Price Index | -5.0 |
Personal Consumption Expenditures: Lubricants & Fluids Price Index | -4.7 |
Personal Consumption Expenditures: Air Transportation Price Index | -4.6 |
PCE: Nonprescription Drugs Price Index | -4.0 |
Personal Consumption Expenditures: Social Assistance Price Index | -4.0 |
PCE: Stationery & Misc Printed Mtls Price Index | -3.9 |
Personal Consumption Expenditures: Televisions Price Index | -3.1 |
PCE: Maintenance & Repair of Rec Vehicles & Sports Eqpt Price Idx | -2.6 |
PCE: Processed Dairy Products Price Index | -2.5 |
PCE: Cosmetic/Perfumes/Bath/Nail Preparatns & Implements Price Idx | -2.3 |
Personal Consumption Expenditures: Fuel Oil Price Index | -2.0 |
Personal Consumption Expenditures: Beef and Veal Price Index | -2.0 |
PCE: Tax Preparation & Other Related Services Price Index | -1.8 |
PCE: Misc Household Products Price Index | -1.7 |
Personal Consumption Expenditures: Other Video Equip Price Index | -1.6 |
Personal Consumption Expenditures: Physician Services Price Index | -1.0 |
PCE: Veterinary & Other Services for Pets Price Index | -1.0 |
PCE: Household Paper Products Price Index | -0.7 |
PCE: Tools, Hardware & Supplies Price Index | -0.6 |
Personal Consumption Expenditures: Jewelry Price Index | -0.6 |
PCE: Major Household Appliances Price Index | -0.2 |
Personal Consumption Expenditures: Accessories & Parts Price Index | 0.0 |
Personal Consumption Expenditures: Prescription Drugs Price Index | 0.1 |
PCE: Other Medical Products Price Index | 0.3 |
PCE: Therapeutic Medical Equip Price Index | 0.3 |
Personal Consumption Expenditures: Casino Gambling Price Index | 0.3 |
Personal Consumption Expenditures: Lotteries Price Index | 0.3 |
PCE: Pari-Mutuel Net Receipts Price Index | 0.3 |
Personal Consumption Expenditures: Legal Services Price Index | 0.6 |
Personal Consumption Expenditures: Prof Assn Dues Price Index | 0.6 |
PCE: Net Motor Vehicle & Other Transportation Insur Price Index | 0.6 |
Personal Consumption Expenditures: New Light Trucks Price Index | 0.9 |
PCE: Motion Picture Theaters Price Index | 0.9 |
Personal Consumption Expenditures: Used Autos Price Index | 0.9 |
Personal Consumption Expenditures: Museums & Libraries Price Index | 0.9 |
PCE: Live Entertainment, ex Sports Price Index | 0.9 |
PCE: Nonprofit Hospitals' Services to Households Price Index | 1.0 |
PCE: Proprietary Hospitals Price Index | 1.0 |
Personal Consumption Expenditures: Spirits Price Index | 1.0 |
Personal Consumption Expenditures: Govt Hospitals Price Index | 1.0 |
Personal Consumption Expenditures: Taxicabs Price Index | 1.0 |
PCE: Intercity Mass Transit Price Index | 1.0 |
PCE: Financial Service Charges, Fees & Commissions Price Index | 1.1 |
Personal Consumption Expenditures: Used Light Trucks Price Index | 1.3 |
PCE: Paramedical Services Price Index | 1.4 |
Personal Consumption Expenditures: Motorcycles Price Index | 1.4 |
PCE: Other Purchased Meals Price Index | 1.5 |
PCE: Video Cassettes & Discs, Blank & Prerecorded Price Index | 1.5 |
Personal Consumption Expenditures: Beer Price Index | 1.5 |
Personal Consumption Expenditures: Pleasure Aircraft Price Index | 1.6 |
Personal Consumption Expenditures: Pleasure Boats Price Index | 1.6 |
PCE: Other Recreational Vehicles Price Index | 1.6 |
Personal Consumption Expenditures: Bicycles & Acc Price Index | 1.6 |
PCE: Pets & Related Products Price Index | 1.8 |
Personal Consumption Expenditures: Watches Price Index | 2.0 |
Final Consumptn Exps of Nonprofit Instns Serving HH Price Idx | 2.0 |
PCE: Alcohol in Purchased Meals Price Index | 2.1 |
PCE: Amusement Parks, Campgrounds & Related Recral Svcs Price Idx | 2.1 |
PCE: Garbage & Trash Collection Price Index | 2.1 |
Personal Consumption Expenditures: Package Tours Price Index | 2.1 |
PCE: Owner-Occupied Mobile Homes Price Index | 2.2 |
PCE: Rental Value of Farm Dwellings Price Index | 2.2 |
PCE: Owner-Occupied Stationary Homes Price Index | 2.2 |
Personal Consumption Expenditures: Recreational Books Price Index | 2.2 |
Personal Consumption Expenditures: Spectator Sports Price Index | 2.3 |
PCE: Other Household Services Price Index | 2.3 |
PCE: Standard Clothing Issued to Military Personnel Price Index | 2.6 |
PCE: Tenant-Occupied Stationary Homes Price Index | 2.7 |
PCE: Tenant-Occupied Mobile Homes Price Index | 2.7 |
Personal Consumption Expenditures: Group Housing Price Index | 2.7 |
PCE: Other Personal Business Services Price Index | 2.8 |
PCE: Hairdressing Salons & Personal Grooming Estab Price Idx | 3.0 |
PCE: Membership Clubs & Participant Sports Centers Price Index | 3.1 |
PCE: Luggage & Similar Personal Items Price Index | 3.2 |
Personal Consumption Expenditures: Communication Price Index | 3.5 |
PCE: Shoes & Other Footwear Price Index | 3.5 |
Personal Consumption Expenditures: Domestic Services Price Index | 3.7 |
PCE: Food Supplied to Military Price Index | 3.7 |
PCE: Elementary & Secondary School Lunches Price Index | 3.7 |
PCE: Food Supplied to Civilians Price Index | 3.7 |
PCE: Higher Education School Lunches Price Index | 3.7 |
PCE: Elementary & Secondary Schools Price Index | 3.8 |
PCE: Outdoor Equip & Supplies Price Index | 4.0 |
Personal Consumption Expenditures: Fish and Seafood Price Index | 4.1 |
PCE: Motor Vehicle Maintenance & Repair Price Index | 4.3 |
Personal Consumption Expenditures: New Domestic Autos Price Index | 4.3 |
Personal Consumption Expenditures: New Foreign Autos Price Index | 4.3 |
PCE: Parking Fees & Tolls Price Index | 4.3 |
PCE: Net Household Insurance Price Index | 4.5 |
Personal Consumption Expenditures: Pork Price Index | 4.7 |
Personal Consumption Expenditures: Child Care Price Index | 4.8 |
PCE: Day Care & Nursery Schools Price Index | 4.8 |
PCE: Corrective Eyeglasses & Contact Lenses Price Index | 4.9 |
PCE: Water Supply & Sewage Maintenance Price Index | 5.2 |
Personal Consumption Expenditures: Housing at Schools Price Index | 5.3 |
Personal Consumption Expenditures: Dental Services Price Index | 5.3 |
PCE: Audio-Video, Photographic & Info Processing Svcs Price Index | 5.5 |
Personal Consumption Expenditures: Life Insurance Price Index | 5.7 |
PCE: Water Transportation Price Index | 5.7 |
PCE: Prerec/Blank Audio Disc/Tape/Digital Files/Download Price Idx | 6.1 |
Personal Consumption Expenditures: Bakery Products Price Index | 6.4 |
PCE: Telephone & Facsimile Equip Price Index | 6.5 |
PCE: Calculators/Typewriters/Othr Info Processing Eqpt Price Idx | 6.5 |
Personal Consumption Expenditures: Musical Instruments Price Index | 6.5 |
Personal Consumption Expenditures: Tobacco Price Index | 6.7 |
PCE: Funeral & Burial Services Price Index | 7.0 |
PCE: Processed Fruits & Vegetables Price Index | 7.0 |
PCE: Social Advocacy & Civic & Social Organizations Price Index | 7.9 |
PCE: Religious Organizations' Services to Households Price Index | 8.2 |
PCE: Laundry & Dry Cleaning Services Price Index | 8.2 |
PCE: Tenant Landlord Durables Price Index | 8.3 |
Personal Consumption Expenditures: Sugar and Sweets Price Index | 8.5 |
Personal Consumption Expenditures: Educational Books Price Index | 8.7 |
Personal Consumption Expenditures: Poultry Price Index | 9.1 |
PCE: Carpets & Other Floor Coverings Price Index | 9.3 |
PCE: Proprietary & Public Higher Education Price Index | 9.8 |
PCE: Nonprofit Pvt Higher Education Svcs to Households Price Index | 9.8 |
PCE: Nonelectric Cookware & Tableware Price Index | 10.3 |
PCE: Labor Organization Dues Price Index | 11.2 |
Personal Consumption Expenditures: Other Fuels Price Index | 11.4 |
PCE: Railway Transportation Price Index | 11.5 |
PCE: Clock/Lamp/Lighting Fixture/Othr HH Decorative Item Price Idx | 11.7 |
PCE: Men's & Boys' Clothing Price Index | 12.2 |
Personal Consumption Expenditures: Household Linens Price Index | 13.0 |
PCE: Repair of Household Appliances Price Index | 13.8 |
PCE: Repair of Furn, Furnishings & Floor Coverings Price Index | 13.8 |
Personal Consumption Expenditures: Electricity Price Index | 14.0 |
PCE: Commercial & Vocational Schools Price Index | 15.1 |
Personal Consumption Expenditures: Audio Equipment Price Index | 16.8 |
PCE: Women's & Girls' Clothing Price Index | 17.4 |
Personal Consumption Expenditures: Intercity Buses Price Index | 18.0 |
PCE: Other Road Transportation Service Price Index | 18.0 |
Personal Consumption Expenditures: Hotels and Motels Price Index | 18.0 |
PCE: Clothing Repair, Rental & Alterations Price Index | 18.4 |
PCE: Repair & Hire of Footwear Price Index | 18.4 |
PCE: Misc Personal Care Services Price Index | 18.4 |
Personal Consumption Expenditures: Pension Funds Price Index | 20.5 |
PCE: Small Elec Household Appliances Price Index | 21.6 |
PCE: Games, Toys & Hobbies Price Index | 21.8 |
Personal Consumption Expenditures: Fresh Vegetables Price Index | 32.2 |
PCE: Newspapers & Periodicals Price Index | 37.6 |
Personal Consumption Expenditures: Dishes and Flatware Price Index | 66.2 |
PCE: Motor Vehicle Rental Price Index | 78.6 |
PCE: Food Produced & Consumed on Farms Price Index | 124.4 |