Without the Outliers, Inflation Is Running Hot. Fed Has Started Mentioning these Measures in the Minutes

Cleveland Fed’s Underlying Inflation Measure Hits 3.0%, Hottest in the Data.

“Soft inflation?” The inflation measure by the Cleveland Fed — the “Median CPI,” which is based on Consumer Price Index data but removes the outliers in the data to reveal underlying inflation trends — jumped 3.0% for September, the highest in the data series going back to the Financial Crisis, when this measure was launched.

By comparison, “core CPI,” which removes food and energy prices, hit 2.4% in August and September, the highest since September 2008:

The Fed is mentioning these kinds of alternative inflation measures in the minutes of the FOMC meetings – voiced by “some participants” – to show that underlying trends in inflation are pointing upward, except for a few outliers, such as the re-collapse of oil prices and a few other items that skew the overall results, and to show that the “soft inflation readings during the earlier period were transitory.”

The oil bust that started in mid-2014 did a job on overall inflation data. The price of oil plunged by over 70%. Crude oil is not only refined into transportation and heating fuels; it’s also used as feedstock for the chemical industry. And that worked itself into the broader pricing data. In October last year, oil prices had recovered partially, with WTI trading in the range of $75 a barrel. But then oil prices collapsed again, and are now down 28% from a year ago.

Oil does this from time to time, as do agricultural commodities, and that is why inflation measures are offered in at least two versions: “All items” and “without food and energy.” The all-items CPI in September rose a tame 1.7% from a year ago. But the CPI without food and energy (“core CPI,” the blue line in the chart above) jumped 2.4% — the fastest rate since September 2008.

Energy and agricultural commodities are not the only items that skew overall inflation readings. There are other items as well that – for reasons unrelated to inflation – more or less briefly spike or collapse, before reverting toward the mean. The moves are related to short-term market manias, supply crunches, supply gluts, sudden price wars, and other factors that are unrelated to the purchasing power of the dollar (which is what consumer price inflation measures).

After the turmoil of the Financial Crisis, the Cleveland Fed launched the “Median CPI” in the chart above to show underlying trends of inflation in consumer prices and to predict inflation trends over the medium time horizon.

The Median CPI tracks the mid-point (median) of the 45 CPI components, with a cumulative importance of near 50%:

  • Above it are the components with the biggest price declines and the lowest price gains that combined weigh about 50% in the index.
  • Below it are the components with the biggest price gains, weighing the remaining 50%.

The line in between marks the midpoint of CPI, hence the “Median CPI.” This line in the middle came in at 3.0% annualized rate in September.

The table (via the Cleveland Fed) shows the 45 CPI components for September 2019, from the components with the largest price declines (at the top, motor fuel: -25.1%) to the components with the largest price gains (at the bottom, lodging away from home: +28.1%). The mid-point (the point closest to a cumulative weight of 50) is the “median CPI,” and is marked in bold (if your smartphone clips one of the four columns, hold it in landscape position):

Component 1-Month Annualized % Change Relative Importance %  Cumulative Relative Importance %
Motor Fuel -25.1 3.6 3.6
Women’s and Girls’ Apparel -18.7 1.2 4.8
Used Cars and Trucks -17.9 2.3 7.1
Fresh Fruits and Vegetables -15.0 1.0 8.1
Infants’ and Toddlers’ Apparel -13.4 0.1 8.3
Fuel Oil and Other Fuels -12.6 0.2 8.4
Miscellaneous Personal Goods -12.1 0.2 8.6
Watches and Jewelry -11.9 0.2 8.9
Medical Care Commodities -6.9 1.7 10.6
Personal Care Products -3.2 0.7 11.2
Alcoholic Beverages -3.1 1.0 12.2
Communication -1.5 3.5 15.7
Energy Services -1.5 3.3 19.0
New Vehicles -1.5 3.7 22.7
Footwear -1.2 0.7 23.4
Tenants’ and Household Insurance 0.1 0.4 23.8
Recreation 0.4 5.7 29.4
Education 0.7 3.1 32.5
Personal Care Services 1.2 0.6 33.1
Nonalcoholic Beverages and Beverage Matls 1.3 0.9 34.0
Processed Fruits and Vegetables 1.4 0.3 34.3
Dairy and Related Products 1.9 0.7 35.0
Motor Vehicle Maintenance and Repair 2.3 1.1 36.1
Public Transportation 2.5 1.1 37.3
South: Owners’ Equivalent Rent of Residences 2.5 8.2 45.4
Water/Sewer/Trash Collection Services 2.7 1.1 46.5
Misc Personal Services 3.0 1.0 47.5
Midwest: Owners’ Equivalent Rent of Residences 3.0 4.3 51.9
Food Away From Home 3.2 6.1 58.0
Meats, Poultry, Fish and Eggs 3.3 1.6 59.6
Motor Vehicle Insurance 3.3 2.4 61.9
Northeast: Owners’ Equivalent Rent of Residences 3.4 5.1 67.1
Household Furnishings and Operation 3.5 4.3 71.3
Other Food At Home 3.7 1.8 73.2
West: Owners’ Equivalent Rent of Residences 3.9 6.7 79.9
Rent of Primary Residence 4.3 8.1 87.9
Leased Cars and Trucks 4.4 0.6 88.6
Medical Care Services 4.5 7.1 95.7
Cereals and Bakery Products 5.7 1.0 96.6
Car and Truck Rental 6.9 0.1 96.8
Tobacco and Smoking Products 7.5 0.7 97.4
Motor Vehicle Fees 7.6 0.5 98.0
Motor Vehicle Parts and Equipment 8.0 0.4 98.4
Men’s and Boys’ Apparel 25.5 0.7 99.1
Lodging Away From Home 28.1 0.9 100.0

As you can see, some prices surge and other prices plunge, and many prices move up and down in smaller increments. Part of those moves are due to temporary factors. CPI is a weighted average of these moves and is skewed by outliers. Over the long term, the moves by these outliers wash out as they revert, but over the median term, they distort CPI.

That’s the reason why CPI is so volatile though the actual loss of the purchasing power of the dollar over time is on a fairly steady trend.

The Cleveland Fed attempts to show the loss of the purchasing power of the dollar over the medium term, not influenced by the outliers. And based on this measure, the inflation trend is heating up. And “some participants” at the FOMC have started to point this out.

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  77 comments for “Without the Outliers, Inflation Is Running Hot. Fed Has Started Mentioning these Measures in the Minutes

  1. Joe
    Oct 14, 2019 at 11:39 am

    Wolf,

    What would the actual oil and gas price be today if not for the constant slap down to these commodities?
    We would have had massive inflation long ago.

    • Juanfo
      Oct 15, 2019 at 11:04 am

      If my neighbors people can afford to drive half a block to the drive thru then the price of oil is way too low. A lot of non-essential traffic should not be on the road.

  2. Wendy
    Oct 14, 2019 at 11:43 am

    Want to find out the purchasing power of the dollar? Just invert the gold price curve. Forget CPI, core CPI, and other manipulated data.

    Some would say the price of gold is manipulated, but not nearly as much as the feds data on inflation.

    • d
      Oct 14, 2019 at 1:41 pm

      The price of gold has been manipulate upward seriously, by producers particularly russia and china, to make their large uneconomical state mines, profitable.

      Hence gold it is useless, as any sort of indicator, or for comparison pricing. The divergence from silver and copper in the last 50 years, shows this.

      Supplier manipulation and fear give you today’s insane 1490 < with a recovery price of 1150 < .

      The closer gold gets to 1150 the more high priced manipulation trades you see, between suppliers their brokers.

      Simplified:

      Supplier a, sells to broker b at 14, broker b, sells to broker c at 14, and broker c, sells to supplier a at 14, multiple trades at 14, where NOTHING actually changed hands.

      As the market is Opaque and all parties are in different countries, break the trades up a little, and it becomes almost impossible to trace.

      If you are a gold bug there is no point continuing.

      If not , you need to replace gold with some other metals to do your comparisons it will give you considerably difference results.

      I have (And I do) X kilos of gold as a store of some Wealth.

      As I physically posses the metal, no matter where the MANIPULATED price goes. I still have X kilos of it. The only concern I am left with is if Gold goes below browns bottom, which was the last time I purchased any. Although I will Inherit so more soon it also was not purchased at anywhere near today's insane prices.

      Both gold and silver are coming off their July August, iranian fear spikes.

      Look to iran to put in another fear spike, before they sell more of their gold, they took for oil, again.

      There are that many groups, manipulating the Gold price up, for different reasons, it is not even funny.

      • Tinky
        Oct 15, 2019 at 5:13 am

        To suggest that this is merely a contrarian take would be too kind – it is bizarre.

        Any serious analysis of the gold futures market leads to the inescapable conclusion that the price of gold has, especially in recent years, been suppressed. No entity that has any objective other than that would ever SELL futures representing ENORMOUS amounts of metal in a matter of seconds or minutes, and yet it has happened consistently.

        As most people don’t have the time or wherewithal to do such research, a simple solution is to consult GATA’s material. They have documented the game meticulously, and their position has been clearly vindicated by the fact that DOWNWARD gold price manipulation has been admitted to by insiders.

        As recently as August:

        “A former J.P. Morgan precious metals traders pleaded guilty Tuesday to criminal charges of manipulating the precious metals markets for nine years. Christian Trunz, 34, of London is cooperating with an ongoing federal criminal investigation.

        “In his guilty plea, Trunz admitted that from approximately July 2007 and August 2016 he “placed thousands of orders that he did not intent to execute for gold, silver, platinum and palladium futures contacts,” according to officials.

        “Trunz, who earlier Tuesday resigned from his position as an executive director at J.P. Morgan, said he “learned to spoof from more senior traders, and spoofed with the knowledge and consent of his supervisors,” according to the Department of Justice.”

        The claim that gold prices have been manipulated upward is ludicrous on its face. And to suggest that China and Russia are involved, when their central banks are the the world’s most rapacious CONSUMERS of the metal, makes it all the more absurd.

      • Wendy
        Oct 15, 2019 at 6:48 am

        Similar to bitcoin?

      • Mike
        Oct 17, 2019 at 3:27 am

        Bankstere must be pleased. By inflation that is near or higher than the interest rates that they pay the “Federal” reserve banking cartel that they control, they maximize the wealth transfered from the majority of Americans to them.

        They pay 2.25% to the Fed. https://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx. They charge others 30 to 15% plus fees and fractional reserve banking lets them benefit from property appreciation if the RE goes up after the loan. They only loan 80% of FMV, at best.

  3. DawnsEarlyLight
    Oct 14, 2019 at 11:45 am

    The Fed’s accepted 2% inflation target is the real problem, outliers be damned.

  4. sc7
    Oct 14, 2019 at 11:54 am

    Let’s keep cutting those rates Jerome.

    • Vespa P200E
      Oct 14, 2019 at 12:00 pm

      One sure way to fight inflation is to raise rates like Volcker was forced to do in the late 70’s with mortgage rates in high teens (hard to believe) towards the end of the stagflation caused mainly by OPEC oil embargo.

      This time though the stagflation may be brought on by the CBs of the world after QEs and ZIRP experiments are looing oomph and next up may be printing like crazy and helicopter money for all.

  5. Lisa_Hooker
    Oct 14, 2019 at 12:11 pm

    I’m trying to understand the hedonic quality adjustments to packaged foodstuffs, e.g. 6oz becomes 5oz, 16oz becomes14oz, etc. At the same package prices of course. Because they are easier to open?

    • Petunia
      Oct 14, 2019 at 12:25 pm

      I’m trying to find out how they account for degrading quality in products, more specifically cleaning products. Household cleaners no longer work like they did before, the soaps don’t clean, the cleaners don’t clean, it’s like they took out the active ingredients. I used to have a cabinet full of different products to clean but not anymore, they are no longer worth the money.

      • Oct 14, 2019 at 12:37 pm

        They made them remove the phosphates, now all products are the same (so buy the cheapest).

        • Kent
          Oct 14, 2019 at 1:07 pm

          Yup. Phosphorus helped clean because it creates phosphoric acid. But once it gets in the waste water system it breaks down and creates algal blooms in lakes and rivers killing the fishies, cause its also a great fertilizer.

        • Harrold
          Oct 14, 2019 at 1:42 pm

          Phosphates are available at Home Depot over in the paint section. Look for a box of TSP. Its $8 for 16oz.

        • Dan
          Oct 14, 2019 at 1:47 pm

          I use Puracy. Excellent cleaners.

        • NBay
          Oct 16, 2019 at 6:48 pm

          ATP (adenosine triphosphate) is the cellular currency of LIFE itself. All living things use it just to stay alive.

      • d
        Oct 14, 2019 at 1:56 pm

        In a country I send a lot of time in, they have a 100% Biodegradable soap, as a bar hand soap and as a liquid dish wash, that has been marketed, for longer than I can remember.

        I have used it all my life. You can safely use it on anything, anywhere, including your hair.

        People complain it is expensive.

        Until they finally figure out, they use 3 or 4 times as much of the non biodegradable cheap products, than that pure soap product.

        The insane thing is, that the NEW “green biodegradable eco friendly products” are more expensive than the soap, and less efficient.

        Remember the base of a lot of cleaners is either (petro-chemical) Kerosene or alkaline.

        If you want to clean something, even dirty things, hot water, soap, and a very fine abrasive, like pumice is all you need, Sand soap if its available, is also very useful.

        • Lisa_Hooker
          Oct 15, 2019 at 8:17 am

          Available in the US as “Lava” brand bar soap. A fine mild castile soap with pumice. Rinses clean too.

    • Brant Lee
      Oct 14, 2019 at 2:38 pm

      That’s how they can dig into wages, it’s been going on since the ’70s. Corporations must show rising profits, not boring steady profits to please the shareholders. A few pennies here, a few ounces there over the years is the business plan.

  6. Jerome's
    Oct 14, 2019 at 12:13 pm

    Many, MANY people are getting crushed by massive inflation in housing costs, healthcare, childcare, education, and food away from home while wages make little progress. Yet we are told there is no inflation, and the economy is great. ARE THESE PEOPLE THAT STUPID?????? Or are they corrupt? I get it the very rich, who make the rules, are doing great. The rest of us are getting cooked, and they have no clue!

    • Saltcreep
      Oct 15, 2019 at 5:07 am

      Or they do have a clue. But, as marginal energy productivity declines, our ponzi financial systems need ever more new debts entering all the time or the illusion will fail and they’ll collapse.

      I reckon it’s pretty clear even to central bankers that constantly increasing debt over a stagnant or declining resource base is creating ever increasing inequality.

      I reckon they’re pretty much futilely praying for some huge new, easily scalable and commercially viable energy conversion technology to come along and rescue them for a while from the massive hole they’ve dug themselves and everyone else into with their infinite growth ideology.

    • economicminor
      Oct 15, 2019 at 10:36 am

      I think most of the people making up these rules as to how real life affects the majority of us are very distant from our reality. They don’t live our lives in any way what so ever. They are like the Wizard of Oz who pulls levers behind big curtains. They can only see the results of their actions in the very distant rear view mirror. It is like they are watching a movie that was made years ago.

      This is why they can only react to crisis. And because they don’t actually understand how things work or care, even their solutions aren’t actually solutions.

      The real problem is that they live in a world of Group Think. Things are so out of balance and out of control and that, NO ONE can do anything other than what benefits their Group or risks being thrown out of the Group.

      Things will only change when there is no other course.

  7. Jerome
    Oct 14, 2019 at 12:17 pm

    Add transportation to the list above. Basically in most things that are essential there is massive inflation. And the Fed wants more? These people are criminals!

  8. timbers
    Oct 14, 2019 at 12:22 pm

    Well, the good news is health and car insurance rates only rise 1% every year so we have nothing to worry about on the inflation front. That’s why America spends to least amount on it’s healthcare than any other nation!

    But seriously, I think it was here that I learned that, only out of pocket and co pays are included in the inflation basket for healthcare?

    If that’s the case, most of healthcare inflation is removed from the report.

    Shirley that must me an accident because I can’t imagine why our policy makers would want to report wonderous inflation figure all the time.

    • cas127
      Oct 14, 2019 at 12:45 pm

      Timbers/Shirley (You Jest),

      I wholeheartedly agree with the snark – our degenerate overlords have been inventing ways to define medical, college, and housing inflation out of existence for decades.

      A major reason that Trump has a hard core of “support” is simply that the vast majority of Americans have many more, much longer lived reasons to hate the “Establishment” – which has more or less managed American decline since almost the conclusion of WW 2 (and the years before WW2 weren’t exactly wonderful…)

      Anybody that exposes the Establishment, kicks them in the nuts, and calls out their more or less state sponsored MSM BS is going to have a lot of support – there is nothing particularly “magic” about Trump (quite the contrary).

    • DawnsEarlyLight
      Oct 14, 2019 at 12:48 pm

      Don’t call me Shirley!

      • qt
        Oct 14, 2019 at 1:04 pm

        Shirley you jest

    • Oct 14, 2019 at 3:27 pm

      I thought the inflation rate for health services in the table above was 4.5%.

      Hospitals in California on average increase their prices about 2.5-3% yearly. This does not include massive increases in common services like lab work for some hospitals. 1% is not at all close to correct for hospital services. I’d bet insurers are increasing about the same amount. Unless of course you were joking about the 1%.

      Although, prices are very high. Sad to say, I could not fathom only a 1% increase next year, unless there was a really strong consumer or political backlash.

    • Memento mori
      Oct 14, 2019 at 6:13 pm

      Just got my health insurance plan for 2020, increase of 16.4% for the monthly premium for exactly same plan as 2019 , plus significant increase of most Cost Share , used to be 100% after deductible, now it is mostly 40% only. Inflation is rampant and significantly so. Restaurants I used to go had a steak in $20 to $30 range , now they all have upgraded to $40 to $50 range, yes that is correct, close to $50 for a steak. I could go on for most items. Fed inflation numbers are just as credible as figures coming from Chinese communist party.

      • NBay
        Oct 16, 2019 at 7:08 pm

        $40-$50 for a restaurant steak instead of $20-$30? Shocking!!!!
        Inflation is really making your life a living hell, isn’t it?

  9. Iamafan
    Oct 14, 2019 at 12:33 pm

    Oh wow, does this mean we don’t get a rate cut? We might could live longer on our piddly interest.

    By the way, the last bag of sugar we bought was only 4 lbs. Previous it was a 5 lb. bag. Unless you check closely, it’s not easy to catch.

    • cas127
      Oct 14, 2019 at 12:57 pm

      Iamafan,

      On the magic of piddly interest…

      Not so piddly to the ravening Federal ScamBeast…in debt to the tune of 100% US GDP.

      By “QE” money printing, the Feds drive down longer term interest rates from, say 7%+ to say 2% or so (lower or negative in various Fed wet dreams…)

      That 5% downward interest rate differential is then scaled against the 20 trillion or so in accumulated US gvt cancer, er, debt.

      That means that QE manipulations have been saving the Feds about $1 *trillion* per year relative to normalized interest payments on the accumulated US debt.

      For a “government” that is *already* running 1 trillion per year deficits – which would be 2 trillion per year if they had to pay non QE forged interest rates.

      Somehow that $1 trillion per year silent transfer of wealth from the dirty public to the “honest, good stewards” of government does not violate the Takings clause.

      Yes, the US is led by the “very best”

    • Oct 14, 2019 at 4:36 pm

      Iamafan,

      CPI takes quantity into account.

      But yes, it’s a shrinkage pandemic. I just bought some “fresh squeezed, not from concentrate, with lots of pulp” OJ at Safeway after not having bought there in a decade because back then they went from 64 oz to 58 oz, and I stopped buying and switched to Trader Joe’s, which still sells OJ in 64 oz cartons. So I just now discovered, after not having looked at them in a decade, that Safeway OJ cartons have by now shrunk to 52 oz. They put them on sale, 2 for $3.99, I believe, and that was a deal, but lordy, how small are they going to make these cartons? Will I have to bring a magnifying glass to the store to find the cartons?

      • Lisa_Hooker
        Oct 15, 2019 at 8:27 am

        In the US a Haagen Dazs “16oz pint” of ice cream now has 14oz. For years I bought 6oz packets of dried tropical fruit for my morning cereal for $1. Except this year it’s now 5oz for $1.

    • GirlInOC
      Oct 14, 2019 at 6:40 pm

      A while ago I found a baking website for recipes that start with a box mix of cake (so take a basic chocolate cake mix…add an extra egg, Kahlua, buttermilk, dark choc chunks…and voila: an extravagant cake!). The site isn’t that old, yet all their recipes call for 18.25oz cake boxes. Those don’t exist at all anymore. They only make 15oz boxes now. And even in the few years I’ve been baking these cakes, they’ve reduced the amount in a box.
      Soon, we’ll just all be making a few cupcakes from a “cake mix”.

    • Bobber
      Oct 14, 2019 at 10:11 pm

      I noticed bags of chips are getting way smaller, and my shaving cream just downsized a few ounces, but the prices actually went up.

      Offsetting that, my stock trading costs just went from $5 per trade to $0, so I guess that makes up for it, and then some. That’ll save me $300-$600 per year.

  10. Oct 14, 2019 at 12:46 pm

    The difference between the Crude Oil collapse of 15 and now, prices very close to what they were, is that gas is over $4. (This could be the lagging effect of the rate hike policy) Lower interest rates cause lower energy prices. The rules have changed, if Fed wants to raise inflation they need to raise interest rates. To lower inflation they need real QE not this phony Repo stuff.

    • Kent
      Oct 14, 2019 at 1:14 pm

      That’s an interesting comment. I suppose the mechanism is interest rates go down => allowing expansion of fracking => increasing supplies of fuel => lower gas prices => lower inflation.

      I think the issue for the Fed is that raising short-term rates doesn’t raise long-term rates. So you get rate inversion and the banks wet themselves.

      • David Hall
        Oct 14, 2019 at 5:56 pm

        As oil production increased, demand increased to about 100 million barrels of oil per day consumption. This pushes oil fields towards depletion/exhaustion.

        China slowed the production of EV electric battery vehicles. The price of cobalt collapsed.

  11. Petunia
    Oct 14, 2019 at 1:27 pm

    I’m not surprised that women’s apparel and accessories are down in price. I only shop the sales and younger women are really into reselling and thrifting, it’s environmentally sound.

    What surprised me is that men’s clothing is up by so much. Women buy most men’s clothes so they would be trying to save there as well. Maybe it’s because men are actually getting jobs and have to have a business wardrobe.

    • Rowen
      Oct 14, 2019 at 3:04 pm

      I think much of apparel inflation has been driven by the tariffs, but women’s apparel is also dragged down by heavy discounting of the fast fashion apocalypse.

    • NBay
      Oct 16, 2019 at 7:30 pm

      My mom once said to me, “You are almost 30 years old. Are you going to wear jeans and t-shirts for the rest of your life?”.

      I’m 72 now, and the correct answer would have been, “Yep”.

      Apparel? All I know for sure about that stuff is it’s always been illegal to be naked in public.

  12. unit472
    Oct 14, 2019 at 1:57 pm

    When I lived in Richmond, Va. the biggest, tallest office building in the city was the Richmond Federal Reserve. 400 plus feet of glass, steel and concrete. These Fed branches used to process all of the nations checks back when checks were the major payment method. I’m not sure they even do that anymore and if they do there are far fewer checks to process. Of course they haven’t downsized their offices. Government agencies never do. Instead they loaded them up with well paid Ph.Ds and set them to ‘work’ finding new ways to massage data which the FOMC pays no attention to ( it listens to JP Morgan and Goldman Sachs).

  13. Rowen
    Oct 14, 2019 at 2:26 pm

    It’s not inflation. It’s the private-equitization of every aspect of your life.

  14. Memento mori
    Oct 14, 2019 at 3:20 pm

    Our society is slowly moving from rule based to power based. All rules were thrown in the garbage when the Fed went berserk printing money and bailing out their cronies in the Great Recession.
    Fed isn’t really bound by any rules anymore, they make their own rules as they see fit.
    Bernanke promised balance sheet holdings would roll off when things got better…when unemployment dipped below 6.5%. (WSJ July 2009) At the time the Dow was around 9k, unemployment circa 10%.Now the Dow is 27K, unemployment is 3.5% and inflation is 2.4% YOY (Core) and the Fed is cutting and injecting via QE? If you cant reduce the balance with an inverted yield curve and all as noted above, when can you? When will you?
    The Fed has continued to change the goal post. Let us not forget when they actually put in the 2% PCE inflation mandate in 2012. The PCE always under states inflation and this is why they changed it from the CPI, from which they had already played the game of excluding food and energy, to the PCE.
    The PCE only has a 15% allocation to housing costs, which is ridiculous. The CPI uses somewhere around 30% which is more reasonable. Basically, PCE is designed not to show as much inflation as the CPI, which has run faster than 2% for a long time now.
    With that one move they told us seven years ago they had no intention of raising rates ever. Remember, there is no 2% inflation mandate for the fed anyway. Their mandate is stable prices or 0% inflation. 2% inflation is mathematically doubling of price level each generation, how is that price stability?
    Worse, they have changed the mandate yet again. They now say there is a 2% average (symmetric is their word) inflation target on the PCE, meaning that for all the time they have undershot the target, they are now allowed to overshoot and have more than 2% inflation.
    See the slippery slope? Only Congress has the right to stop this and they have shirked that responsibility completely. Basically the United States is printing money to pay the bills right now. They will get away with it until they don’t. And when they don’t, it is going to be one heck of a mess.

    • GP
      Oct 14, 2019 at 3:47 pm

      Nice writeup.

      Unfortunate thing is Fed isn’t even breaking any rules. All their actions and decisions can be easily mapped back to the vague, sweeping mandates it has been given by the congress. “We are cutting rates to ensure business environment for maximum employment”.

      I do hope the inflation (which we all know has been happening) shows up in official indicators loud and clear very soon.

    • Lisa_Hooker
      Oct 15, 2019 at 8:40 am

      No worries. As present trends in the gig economy continue we shall soon have a negative unemployment indicator. (Snark – or maybe not.)

  15. Nat
    Oct 14, 2019 at 3:36 pm

    OOoooo! I just noticed the “Nothing goes to heck in a strait line” beer mugs. … tempting.

    “*beer not included”

    BOOO! Joking aside though a line of “Wolfstreet Reserve” beers including “Liquidity” and everyone’s favorite pale ale: “QE lite” would be amusing.

    • Oct 14, 2019 at 3:49 pm

      I love it. The question is, what kind of beer would “Liquidity” be? A basic golden ale seems appropriate, but kind of boring from a flavor standpoint.

      • Nat
        Oct 14, 2019 at 4:33 pm

        Its a good question. I’ll admit I got nothing on the details, I just like the concept ads of “The Wolfstreet Reserve is always providing ‘liquidity’ “

    • Oct 14, 2019 at 4:20 pm

      Great idea. I should get one of the craft brewers around here to do an assortment of WOLF STREET beers, such as your QE Lite, or “Bitter Medicine IPA,” or maybe “Repo Amber.”

      Check out the mug here: https://www.wolfstreetstore.com/

      • Lisa_Hooker
        Oct 15, 2019 at 8:43 am

        I feel that some form of “Stout” liquidity would be most appropriate. I’ve always had a thing for dark brews.

        • DawnsEarlyLight
          Oct 15, 2019 at 12:57 pm

          With a touch of bitterness…

      • Mike R
        Oct 15, 2019 at 5:45 pm

        How ‘big’ is that mug ? Hopefully it didn’t already succumb to inflation, and is too small to hold a regular bottle of beer.

        • Oct 15, 2019 at 7:36 pm

          Mike R

          The photos of the mug you see on this site here show the mug with 12 oz of beer in it, from a regular 12 oz bottle. There is close to an inch left between the top of the beer (no head) and the rim of the mug. So you see the mug holds more than 12 oz. Maybe 15 oz if you fill it up all the way.

  16. HB Guy
    Oct 14, 2019 at 7:22 pm

    Wolf, thanks for a very detailed explanation of the CPI and more importantly, its components. I’m confused, though, by some of them.

    Could you elaborate further on the “South, Midwest, Northeast, West: Owners’ Equivalent Rent of Residences”, which cumulatively account for 24.3% of the CPI in the chart, AND “Rent of Primary Residence” which accounts for what appears to be an additional 8.1% of the CPI. Taken together, these would appear to account for 32.4% of the CPI. Is this correct, and if so, why aren’t there regional weightings for other components?

    I appreciate that this treatment is controversial – John Williams of Shadow Stats tried to explain it on a Greg Hunter interview – but only left me more confused. I’m hopeful you’ll enlighten me. Thanks.

    • Oct 14, 2019 at 8:31 pm

      “… these would appear to account for 32.4% of the CPI.”

      Yes, that’s correct. Housing is about 1/3 of CPI.

      “… why aren’t there regional weightings for other components?”

      I’m the wrong person to ask why the Bureau of Labor Statistics does anything. But it kinda makes sense to me, given the huge price/rent differences regionally. A new Ford pickup pretty much costs the same wherever you buy it in the US. But the costs of renting or buying a place to live in is vastly different. For example, the median price of a house in Tulsa is around $140k. The median price of a house in San Francisco is over 10 times as much.

      • HB Guy
        Oct 15, 2019 at 12:25 pm

        Wolf, thanks for the response. Food and energy costs vary significantly by region, too, and they’re excluded from “core CPI” and other measures. It costs far more to heat a home in the Northeast or to cool a home in AZ/FL/TX than in most of California or the Pacific NW.

        Why not exclude housing from core CPI, too?

  17. Frank
    Oct 14, 2019 at 7:33 pm

    Can I have an exclusive UK import contract for Wolf Street beers and mugs please

  18. fred flintstone
    Oct 14, 2019 at 8:22 pm

    At my local grocery prices were increased substantially the past few months.
    Used to be 4% unemployment was called full employment and the fed would be on inflation watch. Of course that was when patriots existed in the US.
    Now with the tariffs or potential trade deals with Japan, China, ECB supplying some increased inflation the fed goes to this madness of cutting rates with 3.8% unemployment.
    If the feds would get control of immigration we might not be able to cut rates because labor would be non existent right now. Higher rates and due to the rates somewhat lower inflation.
    Its evident that the wealthy are not satisfied with just tax cuts. They want to steal every dime from middle class savers and party on. All the while the defense budget defending us from nobody and government in general gets bigger and bigger so the contracts get bigger and bigger transferring more and more. Heck….lets have another war….nobody cares because we got rid of the draft……think of the contracts.
    They are not creating wealth…..if they were no one would say much……they are simply stealing.
    Eisenhower…..where are you?

    • NBay
      Oct 16, 2019 at 8:37 pm

      Might as well just replace the stars in the flag with the top 50 corporate logos right now and end the senseless charade of “government of the people, by the people, for the people”.

      Sorry about that plea you made at Gettysburg, Abe, we blew it long ago.

      But it was worth trying.

  19. CAW
    Oct 14, 2019 at 10:08 pm

    Don’t like beer but love your site!
    Very interesting indeed to hear all about “real inflation”. Also the comments on how it relates to QE, or non-QE QE as the Fed now insists. I noticed The Economist reckons inflation is no longer a good indicator and everyone talks about the broken Phillips curve. What do you think?

  20. Pandorum
    Oct 14, 2019 at 11:01 pm

    The standard of living is leveling off throughout the world. The Western standard still has a lot to go down to meet the rest of the world in the middle. Thank our globalization overlords.

  21. normansdog
    Oct 15, 2019 at 3:14 am

    our concept of “Standard of living” is tied closely to energy consumption.

    “US and German citizens consumed in 2016 about 223 and 124 kWh, respectively.”
    https://home.uni-leipzig.de/energy/energy-fundamentals/04.htm

    So an american consumes about twice as much energy as a German.
    Presumably this implies a higher standard of living but maybe it also reflects other things such as a general disregard for energy efficiency in the US – I don’t know.

    In any case, if you assume that a human produces around 100W of power then as 223kWh ==9300W continuously then each american citizen has the equivalent of about 93 human slaves working for him or her all of the time (used to be like this for the old kings and queens).

    As someone once said, if something can not go on, then it will stop.
    This level of energy consumption is not sustainable so the US is looking at a major fall in “standard of living” over the next decades because of climate change. The US could presumably drop to the level of Germany without too much trouble (aircon in shops set at 75F and not 65F) – but we need to drop to the level of India or Africa and that may involve some radical re-thinking of our ideas of “Standard of living”.

    • lisa
      Oct 20, 2019 at 11:41 am

      RE your:”but we need to drop to the level of India or Africa and that may involve some radical re-thinking of our ideas of “Standard of living”.”

      Yes we are. The thinking has already been done for us by the lack of business planning, and good business practices by the like of PG&E. The new business model based on corporate power companies will be rotational access-to-power-grid due to failure by the corporations to maintain, and UPDATE critical powerlines, and poles that were originally put up, and rigged way back starting in the 1930’s.

      Yes pretty soon, we will be accessing power pretty much like South America, India and Africa. First pay to even get on a rotational schedule to actually get any power from the grid, based on certain specific hours during the day….

      Fun and games after 2019. The new game titles- Power Daemons and Locked Out. Heat no heat. Water no water. The price just keeps escalating for any level of access…….

  22. Old-school
    Oct 15, 2019 at 5:28 am

    There are a lot of distortions by zirp. Take insurance. One way insurance companies stay profitable is by getting paid first and investing the money and earning interest income on the ‘float’ til they have to pay claim. If interest rates go to near zero insurance rates have to go up to offset lack of interest income.

    This is one difference between when govt makes a promise to pay and an insurance company. The insurance company has a real pile of capital to pay claims from. Last I checked Berkshires pile of ‘float was around $100 billion. Interest income at 2% is $2 billion. If rates go negative it will cause inflation in insurance market prices or inefficient operations to go out of business.

  23. Wes
    Oct 15, 2019 at 8:23 am

    Mr. Richter, pertaining to oil, the supply/demand elasticity seems to be at work. This year there was a significant drop in miles driven. Obviously, there is also the increase in mpg over the last 10 years. As for rent etc. the replacement cost of housing has increased and older homes have been selling below what it would cost to build a new one. It is interesting to see grain prices at 7 year lows and cereals and grain based food costs rise. There also seems to be a lot of elasticity in some prices where substitutes keep them in check. As for government services, well they seem to always be the first to lead inflation.

  24. rhodium
    Oct 15, 2019 at 8:44 am

    At least in commodities it does seem to have the inverse effect from what you’d expect. At the very least, energy being an input for literally everything else, it’s low price has actually prevented a lot of inflation. The problem is largely because low interest rates have forced investors to seek high risk speculative returns, one of the prime examples being the money that poured into the fracking boom. The losses from producing below cost in many cases have generated a low, no, or negative net return that still has yet to be fully realized by investors. I’m still eagerly watching to find out if the next bust comes with a contrarian semi reflation of commodities which are on the whole extremely low relative to historical prices, especially when considering inflation everywhere else. Zooming out, since commodities are fundamental input costs for products and now quite affordable, you’d think consumers would be better off than ever. It sure doesn’t appear that way internally though, which if not imagined, means something extremely odd is happening. Of course, this shouldn’t be surprising though once you consider the expected effects of a rentier economy, monopolization, and the ever heavier burdens of inefficient behemoth industries like healthcare and education.

    • Wes
      Oct 15, 2019 at 8:05 pm

      Rhodium,
      If I remember correctly it is my understanding that condensates from shale oil are very close to gasoline and require less input refinery costs. The other side to shale oil is that there is no bitumen for asphalt or thick crude for refining into heavy oils. This would seem to imply a lower refinery cost input to make gasoline and possibly a potential supply surplus.

  25. NotBuying
    Oct 15, 2019 at 11:04 am

    Wolf, do you care to comment on the continual changes to CPI and how the measurement has been routinely rethought in order to suppress real CPI?

    • NotBuying
      Oct 15, 2019 at 11:24 am

      Nevermind! Looks like you already covered it :)

    • Oct 15, 2019 at 1:36 pm

      The site you linked is a hoax that people try to promote on my site, and I don’t allow it. Just do the math yourself: If inflation is 11% every year, as this hoax claims, it would amount to a more-than-doubling of the cost of living on average for all Americans EVERY 7 YEARS. That is just pure BS.

  26. PIETER
    Oct 16, 2019 at 7:58 am

    What is the INFLATION OF TAXATION/GOVT FEES over the past 100 years. That is a book I would buy.

    Seems like every year we get more and more taxes and fees, tolls, tickets, and charges on everything from utilities to buying anything…. the tax man gets his cut. Personal property taxes on everything you own/ going to the dump even has fees now. Yet somehow they need more and more! Yet they are all bankrupt and going down the road of insolvency and taking us with them.

  27. carla
    Oct 16, 2019 at 8:06 pm

    Here in NYC they passed a minimum wage at $15.
    The same week all related prices went up immediately (and the head count went down).
    Besides that there’s no inflation to speak off.
    A coffee and croissant on my block is $8.

  28. Michael Gorback
    Oct 16, 2019 at 8:07 pm

    At the rate toilet paper width is shrinking I’m starting to think of switching to rolls of stamps.

  29. lisa
    Oct 20, 2019 at 9:34 am

    Here’s a summary from a real 38.5 hour paycheck in 2019.- Gross is $675.30USD; Net is $549.54USD. Base pay is $16.00USD per hour. 6.5 hours were earned as OT and differential after 6pm. The OT and differential is calculated at two different rates. Person cannot work over 40 hours per week. OT on a daily basis has to be pre-approved and cannot exceed more than 2 hours in any day. Maximum hours per week is still the weekly OT regardless. Must take a hour hour unpaid break by any 5 hour work interval.

    So with a weekly net earning of $549.54USD which comes to $2381.34USD per month NET- just how much is even left for any essentials such as transportation, food and utilities, when an average one bedroom apt. is like how much in major cities across the US?(weekly net calculated to 52 weeks, divided by 12 to reach a monthly amount.)

    That weekly payrate of $16 per hour actually becomes $17.54USD due to OT and differential pay.

    No other benefits included in that hourly rate for insurance, 401k or any kind of pension accrual.

    That real take home pay to cover real on-the-street basic expenses does NOT meet minimum necessities to SURVIVE practically anywhere in the US.

    There are quite a number of US citizens earning less. The percentage of bodies in the upper two quintiles that drastically UP-state the overall median and overall average earnings distort the individual earnings of the percentage in real numbers of human bodies, and households as to the net wage income accessible to those in the lower 3 quintiles, especially the bottom 2, which the majority of US citizens are numbered.

    Calculate the distortions overtime, and the picture of reality gets a little more focused. Most inflation trends just foo-foo over all the poo-poo.

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