Inflation progress

Most inflation numbers and reporting come from a bunch of people who don’t understand much about statistics or how to present data.

Here’s the latest on inflation numbers from a guy who does understand, a numbers and charts wonk.



And a couple of follow-up posts with further observations.

A couple of quotes from the second post:

  • Inflation hawks have spent the past 40 years warning over and over that liberal policies would send inflation spiraling, just like the 1970s, and for 40 years they’ve been wrong. But eventually we were bound to get a bout of inflation. Even if they were right this time, they’re more like a stopped clock than a Swiss watch.

  • MORAL OF THE STORY: We have been fooled all along because we surrendered to fears of the past and didn’t look at the inflation data properly. Perhaps that was inevitable early on when data was thin, but today we have plenty of data and we know how to look at it. So now we need to do what John Maynard Keynes allegedly recommended, and change our minds when the facts change. Or, in this case, when the facts become clearer.

  • Our current bout of inflation was (a) completely artificial, (b) fairly short, and (c) will be completely gone within half a year. Unfortunately, monetary policy has lags, and we’re still likely to pay a price next year for the higher interest rates of this year. We can only hope the damage isn’t too great.



Some METARs have inflation-adusted bonds, such as I-Bonds and TIPS. We have a practical interest in knowing the inflation rate that affects our bonds.

I-Bonds: I bonds interest rates — TreasuryDirect
We set the inflation rate every May 1 and November 1. We base the inflation rate on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U)> for all items, including food and energy. 1982-84=100

DATE CPIAUCNS % change annualized
2020-01-01 257.971
2020-02-01 258.678 0.27% 3.29%
2020-03-01 258.115 -0.22% -2.61%
2020-04-01 256.389 -0.67% -8.02%
2020-05-01 256.394 0.00% 0.02%
2020-06-01 257.797 0.55% 6.57%
2020-07-01 259.101 0.51% 6.07%
2020-08-01 259.918 0.32% 3.78%
2020-09-01 260.28 0.14% 1.67%
2020-10-01 260.388 0.04% 0.50%
2020-11-01 260.229 -0.06% -0.73%
2020-12-01 260.474 0.09% 1.13%
2021-01-01 261.582 0.43% 5.10%
2021-02-01 263.014 0.55% 6.57%
2021-03-01 264.877 0.71% 8.50%
2021-04-01 267.054 0.82% 9.86%
2021-05-01 269.195 0.80% 9.62%
2021-06-01 271.696 0.93% 11.15%
2021-07-01 273.003 0.48% 5.77%
2021-08-01 273.567 0.21% 2.48%
2021-09-01 274.31 0.27% 3.26%
2021-10-01 276.589 0.83% 9.97%
2021-11-01 277.948 0.49% 5.90%
2021-12-01 278.802 0.31% 3.69%
2022-01-01 281.148 0.84% 10.10%
2022-02-01 283.716 0.91% 10.96%
2022-03-01 287.504 1.34% 16.02%
2022-04-01 289.109 0.56% 6.70%
2022-05-01 292.296 1.10% 13.23%
2022-06-01 296.311 1.37% 16.48%
2022-07-01 296.276 -0.01% -0.14%
2022-08-01 296.171 -0.04% -0.43%
2022-09-01 296.808 0.22% 2.58%
2022-10-01 298.012 0.41% 4.87%
2022-11-01 297.711 -0.10% -1.21%

The semiannual inflation rate for I-Bonds issued from November 2022 through April 2023 is 3.24% (annualized to 6.48%). This is added to the fixed rate to get a composite interest rate. The I-Bonds issued from November 2022 through April 2023 have a fixed rate of 0.4%. The fixed rate of I-Bonds issued from May 1, 2020 through October 31, 2022 was 0%. All I-Bonds may be held up to 30 years. They may be redeemed any time before that (as long as they are held at least 1 year) and will return par value regardless of what prevailing interest rates are at the time.

Treasury Inflation Protected Securities (TIPS)
Unlike other Treasury securities, where the principal is fixed, the principal of a TIPS can go up or down over its term. The coupon is fixed. TIPS can be bought on the secondary market at a premium or discount, yielding higher or lower than the coupon.

When the TIPS matures, if the principal is higher than the original amount, you get the increased amount. If the principal is equal to or lower than the original amount, you get the original amount.

TIPS pay a fixed rate of interest every six months until they mature. Because we pay interest on the adjusted principal, the amount of interest payment also varies.

You can hold a TIPS until it matures or sell it before it matures. If prevailing interest rates are higher than the coupon the bond will sell at a discount so the owner can lose principal. (Unlike an I-Bond, which can never lose principal.)

TIPS use the same CPI-U, unadjusted, as I-Bonds. Each TIPS is different so the interest is calculated using the CUSIP number.

However calculated, inflation numbers have practical impact.

  1. Each household will experience different inflation, depending on the mix of goods and services.

  2. Inflation directly impacts the interest payments on I-Bonds and TIPS.

  3. Inflation impact the Federal Reserve’s policies. It’s clear that inflation began to slow noticeably after June 2022, but the trend is still up although less steep. To say, “Inflation dropped like a stone in November” is not going to change the Fed’s policies. The Fed has published that they judge the median PCE is the most accurate measure of inflation. The median PCE and CPI have certainly NOT dropped like a stone. They are far above the Fed’s target. So it doesn’t matter what Kevin Drum thinks. It matters what Jerome Powell thinks – and Powell said straight out yesterday that the Fed will continue to raise the fed funds rate and keep it high for an extended period.
    Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCNS) | FRED | St. Louis Fed
    Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL) | FRED | St. Louis Fed
    Median Consumer Price Index | FRED | St. Louis Fed



I’m not sure I understand how he’s drawing the averaging curves in the graphs in his articles. I read the articles, but they don’t seem to explain how those are drawn. Just at a glance, they don’t seem to line up with the data behind them at all.

It does seem that he’s basing his arguments on those graphs, so it would be good to understand how he’s coming up with them.


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The essence of what most of these people are saying is to use more instantaneous measures of things. For example rent … they are saying it would be better to have declared 12% inflation a few months ago and 5% inflation now by using real-time rent changes. But they never mention why rent changes are staggered out by the CPI. Rent changes are staggered out because changes in rent don’t affect people instantaneously, they only affect about 1/12 (really less due to certain leases) of the renters instantaneously. Then the next month they affect another 1/12, and so on. Hence the staggering out when CPI is calculated.

Are there better ways to do it? Probably. I would perhaps use windowed rent changes over the average rental period. Let’s say the average rental period is 14 months, then you could do a windowed 14-month rent and calculate rental change from that. It would be somewhat gradual, as it is today, but would at least account for newer data a little quicker. (or maybe that’s how they already do it?)

And here’s the most recent take from Kevin Drum regarding inflation. People who understand statistics and useful explanations thereof are rare.

Since the headlines are his own, they aren’t misleading.



We’d all love to see inflation numbers fall like a stone next month. But don’t hold your breath.


Well, here’s the latest.

The money quote:
The Fed’s war on inflation begins this summer, when its interest rate hikes and its public statements start to affect inflation. If inflation goes up over the next few months and then declines in the summer, the Fed will have proven itself farsighted. If inflation keeps going down and then the economy crashes midway through the year, the Fed will have proven itself about as competent as a Russian general.


And continuing… Just exactly what is “hot” other than corporate profits?


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Well, as the first paragraph states, “unemployment is at 3.4%, which indicates a tight labor market and therefore economic hotness”. To find anything lower you have to go back to 1953.


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I think, but am not sure, that we are close to falling off the inflation cliff. I have not seen this written elsewhere, but then try as I might I can’t read everything :wink:

One year ago the war in Ukraine started. As I recall that was the exact moment when gas prices went through the roof, as Europe stopped buying Russian gas, put demand on other worldwide prices, and other factors (below) took hold.

Energy prices, as we learned in the 70’s, ripple through everything from production and packaging to agriculture and transport. Energy prices have moderated somewhat, but more important (I think) are the comparisons that economists will be making vs. 1 year ago, as they do to eliminate seasonality.

The pandemic introduced a lot of other issues, supply chain screw-ups just one of the most obvious, but hoarding and price gouging others - but I should think that when year vs year comparisons are made we are about to see some pretty dramatic comparisons. As with most things economic there will be some hangover for a few months as things work through the production/supply chain - and some of the increases are likely permanent (wages) while others may be moderating (commercial and consumer rents).

So the next couple months will be telling, but I’m expecting “moderation” from our current perception of “high inflation”.


From what I’ve read over the last 10 days or so is that the new worry, despite consensus of inflation abating due to the factors you mention above, that it won’t abate enough to reach the 2% target. And thus the fed will continue raising interest rates into a [hopefully shallow] recession.


There’s another consideration. Just like oil prices make their way through the economy, wages have the same effect. With unemployment so low, there are still plenty of inflationary pressures on wages.

So even if inflation settles down to 2% or less, I expect the Fed to keep their target rate at 5% or higher until unemployment get up to 5%.


Where exactly? Wages have risen, and are rising, slower than inflation.

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Can you explain further?

If inflation goes to 2%, which is the Fed target, and the Fed has said that current fed fund rates near 5% are restrictive (ie, reduces economic activity), why do you think Fed would maintain rates to raise unemployment?

What you describe is not the Fed’s mandate, right?

I have not seen the Fed state any kind of policy intention that resembles what you describe.

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There was a recent Wall Street journal article about these base effects. We are approaching the one year anniversary of when food and energy prices rose sharply and then year over year inflation peaked. This then sets a higher bar for year over year price comparisons of 2023 past 12 months price changes vs 2022 past 12 months price changes.

Inflation is about to “be tamed” from the simple fact of easy year over year comparisons. For example: 2021 X cost $100, 2022 X cost $110 so 10% inflation, and 2023 X cost $111 so less than 1% inflation.

As far as unemployment being historical lows, baby boomers are retiring so many jobs vacant and the population numbers aren’t there to fill them. Seems like every tradesman/company I deal with says they could easily hire more because of business demand but the people aren’t there.

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Well, this is the exact definition of inflation slowing (price increases over the last 12 month period not as high as price increases over the 12 month period prior to that), no?

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I agree that inflation seems to be slowing, but 2023 is not over and the above assumes there will be no additional inflation for the remaining 10 months this year. I’m not sure we can bank on that even though I don’t see it rising to 2023’s 10%. Maybe 3-4%?


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The fed has a dual mandate - inflation and employment. You can read about it from the horse’s mouth here: