The BLS CPI report is out tomorrow. There will be a second report before the September Fed meeting. The reports will allow the Fed to cut rates by 0.50 Percent.
Gaming the CPI Month-Over-Month
The Bloomberg Econoday consensus is for the CPI to rise by 0.2 percent in July.
I will take the under at 0.1 percent with a decent chance for lower depending on rent and owners’ equivalent rent (OER).
OER is the price someone would pay to rent their own house if they rented instead of owning.
Estimating Year-Over-Year for July
For every 0.1 percentage point above or below 0.2 percent for July, expect a corresponding move in the year-over-year report tomorrow.
My estimate is 0.1 percent for July, thus a 2.9 percent year-over year number, down from 3.0 percent last month.
Year-Over-Year Look Ahead
- July: 2.9 percent
- August: 2.4 percent
- September: 2.1 percent
At the risk of looking silly, I suggest any surprises for those numbers to be to the downside.
Adjustments
My forecast for August and September depends on being correct for July.
For every 0.1 percentage point above or below 2.9 percent in July, adjust August and September up or down accordingly.
The year-over-year reports for August and September will be very good regardless of what happens in July.
Producer Price Index (PPI) Weaker than Expected
Earlier today I commented Producer Price Index (PPI) Weaker than Expected, the Fed Will Be Pleased
The PPI rose 0.1 percent in July vs. a 0.2 percent Bloomberg Econoday expectation. The way the PPI outperformed will please the Fed.
Transitory Pleasure
The Fed’s pleasure will be transitory as good CPI reports morph into a recession.
For discussion, please see my August 2, 2024 post The McKelvey (Sahm) Unemployment Rate Recession Rule Just Triggered.
I did a follow-up post on August 9, Recession Debate: Citing the Sahm Rule, WSJ’s Greg Ip Says No Recession
Greg Ip says the conditions for recession are not in place. I disagree. And I show where and how he went wrong.
Expected.
It is very important to reduce the COLA to those pesky and expensive retirees.
Today: Expect Good to Very Good CPI Reports for July, August, and September.
Tomorrow: Expect a Revised to Very Revised CPI Reports for July, August, and September.
What an absolute joke of a financial house in order, if there ever was one. Same old story, over and over again, and expecting a different result. Hey I recall something said about doing so, but I digress…
Our numbers are great, so we can and should print much more Taxpayers Money to give away. We must take care of the World you know… What’s that? What about the USA? Who’s that? We are the World, don’t you know? They even made a song about it! Come one come all, the peasants, I mean the Taxpayers, will take care of you. We make them do so, against there wishes…
Given this is and has been for many years… a centrally planned economy … they will manipulate the numbers to support any decision they intend to make regarding rates.
It’s all fake.
Of course it is …strip out the trillion dollars of new debt every 100 days… and what would the economy look like?
I agree they are massaged statistics by the federal bureaucracy’s economists.
I’ve been watching things closely and my thesis is that the economy has been steadily slowing since basically the end of last summer (2023), so for going on a year. Albeit there will be regional variations. Sure, some “industries” — mostly on government payroll — are growing but all of those dependent on discretionary spending (e.g. travel, restaurants, shopping) have slowed way down.
So Social Security recipients will get screwed again. Last year tax brackets went up 5.4%, SS went up 3.2%. The ratio will likely be the same this year.
Great points here. Finally these two big numbers will roll off. If your projections come to pass, that will put the Fed in quite the conundrum. Powell clearly wants a smooth transition on both sides of this. He was slow to raise on the way up and wants to slowly drop the FFR. You might think I’m mad claiming he raised slowly, it was several 75 bp hikes in a row, but that was off of zero, with inflation sky high, and never close to restrictive for months and months. He raised way too slowly, because the Fed values stability. He wants the same now. 2.1% inflation plus rising unemployment will make it pretty damn hard to argue against .50 or even faster cuts. Hard to put a .75 out there without spooking everyone.
I hope we get 2.1% just to see how this story tells itself.
Of course. This is the time period when the SS COL percentage is calculated! The government wants that number to be as low as possible.
Does anyone know WHY the SS COL calculation only includes the last 3 months of the prior federal government fiscal year? Has it always been done this way? Why aren’t the full prior 12 months included to truly represent how costs have increased from one year to the next?
Can someone at a Trump rally get him to promise to change this to go along with the free money from tips that some workers have been promised?
The reported headline inflation is the increase in the CPI-U index over a rolling 12-month period. The figures used for SS COLAs are the increase in CPI-W over rolling 12 month periods ending with July, Aug, and September. But why don’t we just use the middle month (August) for this rather than average three consecutive months.
My understanding is that the last 3 months are the only figures used, not a 12 month rolling average. Where did you get your info from?
The reported CPI and PPI headline number is a one-month change from last month – seasonally adjusted.
Seasonally adjusted. You mean seasoned to suit candidates in an election year. The same government that attempted to assassinate their rival and committed an election fraud coup cannot be trusted with economic data.
I agree, No Politician’s (ie. Govt.) should be trusted with economic, or any Data, that suits their best interest. This is why they manipulate them so!
You don’t get re-elected, by NOT Promising money, and goodies to the electorate. The trick is to figure out the largest voting block first, and then shower those voters with promises galore.
Doesn’t matter if you don’t pull through for them, if they are gullible enough to believe you in the first place, then you have the hook firmly set, so simply reel them in, but slowly first, and then all at once. Has worked for Politicians in the U.S. for decades and decades, so don’t expect them to look for another way, when the success this way is clearly 100%. Just look around the U.S. and explain to me otherwise, if you can…
The signal is intrinsically noisy, a three month average smooths it out.
Wait, you think however many thousand folks at the BLS, the entire economics community, financial markets are in on some great big scheme to fudge 12-month rolling CPI for three months every year in order to assist the social security trust fund in keeping COLA’s lower? Especially under a democratic administration? A ministration that bragged how HE gave senior citizens the largest SS raise evah? Biden don’t care about debt dude. 10,000 BLS people arent sealing their lips.
The CPI is going to shrink because A) the economy has been softening for months B) consumers are fed up with price hikes and boycotting C) that Gucci Covid cash is spent D) credit cards are maxed out for the lower income quintiles, and E) two massive monthly numbers are rolling off.
Yes, I do. Here is how the calculation is made and as you, Jeff and others can see, it is indeed a single quarter that is compared
Short covering ??
Why negative numbers? After all, the inflation numbers are totally bogus.
I disagree, but I am stuck in an anecdotal quagmire. All my street views are negative. People are saying they can’t believe how quickly it is turning down. So that would indicate you have a point. It’s good for the Fed and bad for the economy.
Interesting. I hope that he lowers, as the Stock Market COULD crash, opening up good candidates finally. I will cherry pick DIV stocks VALUE (OIL) etc.
Agree. LFG.
Do they account for “shrinkflation” in the CPI? For one, I believe that an ass kicking downturn is desperately need so as to flush the toilet so to speak. If we play this print, print game long enough it is Argentina time. We cannot liven these perpetual up, up, up no end in site asset bubbles like a drunk who is trying to stop the inevitable hangover by drinking more in the morning. Eventually is comes down to a painful a withdrawal or death.
Yes they account for shrinkflation. But they do allow substitution which I am against.
Cat burgers. They’re not that bad.
QQQ is rising to a resistance line : Nov 2014 to Mar 2018 highs on falling vol. after
staying above in June and July. The Support line is Aug 2015 low. What will the Fed do if QQQ reach/breach support. IF !
Why will the reports allow the Fed to cut rates by 0.50 Percent?
They have assured us that as they reach one of their two mandates (this one being 2% inflation rate) that they will cut rates. They have been steadfast in their patience awaiting an approach to 2%. If you saw Mish’s 2.1% Sep CPI forecast, then you can connect the idea of a rate cut with the lower CPI readings (and concomitant lower inflation reading).
Because jobs are about to go to hell and the Fed has a dual mandate now balanced.
Layoff’s have not spiked yet. Besides, people still believe the Fed cares about maximum employment? I guess it’s like believing “stable prices” means 2%, when stable means 0%.
Cutting rates will do nothing to stop the recession, just as raising rates does nothing to stop the spending, when Govt is the biggest borrower.
It’s all about curbing interest expense, which will also fail when the war kicks into full gear, likely before Jan. Rates always rise during war, and the Fed has acknowledge their impotent against the self-interest of Congress and President.
But they have clearly started
Because they don’t want Trump as President!
An interest rate cut bolsters Harris. Just as a Gaza ceasefire would.
Government statistics are all lies. The government lies about everything 100 percent of the time. The dollar has lost 25% of its value in the past 4 years. That figure does not jive with official government statistics. The dollar is basically worth a few pennies in relation to its pre inflation value
Here’s a quick fact check on your “all lies” idea.
The CPI index level was 268 four years ago. It is now 314.
That’s a rise of 17.2 percent.
Now, do I think it is higher?
Yes, but not because of “lies” but because housing is not included in the CPI and I think it should be.
For renters and those looking to buy a house, the CPI is much higher. For those who own their own home and refinanced at 3.0 percent, the CPI is actually much lower.
For those who pay their own health insurance … Mercy!
None of this is “lies”. It’s statistical Bullshit depending on whether you are looking to buy a home, pay your own insurance, and are truly honest about what’s happening.
And by the way, 25 percent (if that applies to you) means the dollar is worth 75 cents, not a few pennies.
I am probably one of those whose actual CPI is far less than 17% because I own free and clear and am on Medicare.
But OK, I sympathize. But let’s be honest about who is getting hurt and by how much.
Food, fast food, insurance, medical, and credit card interest costs doubled. So the Consumer Price Index is a misnomer or a lie.
Look – Rent is 35% of the CPI.
Credit card rates (only fools carry credit card debt).
You are entitled to believe what you want, but I explained what is happening accurately.
If you rent – your actual CPI is higher. If you own, it’s lower.
Everyone has their own CPI.
Using government statistics, to prove government statistics are accurate is oxymoronic. It is like saying I am not lying to you, I can prove it, just ask me….
Government corruption is systematic to the degree that nothing they say is truthful in any way. The practice of hedonics and substitution is only one example of how they lie to the public. Everything the government says are lies, it is not capable of telling the truth.
The dollars worth is measured by its value beginning when it was backed by silver and gold. The value of the dollar began to deteriorate when they debased coins in 1965 by removing their silver content. Using 1964 as baseline, the dollar is worth less than 4 cents. But you already know all this.
I’m going to have to agree with Jdog here. The general price level in the U.S. is up by at least 25% since 2020 regardless of what the BLS claims. Many items are up way more than 25%. I’d be hard pressed to think of a food item that isn’t up 30%. Homeowners with paid off houses still have to buy goods and services in this inflated economy.
Has YOUR standard of living decreased? My prices are up the same and I’m FAR better off than I was under Trump. Are you bemoaning your decline in life, or just trying to “protect all the little people?” I’ve had the biggest raises of my life outside of the dot com boom these last three years. My pay is up probably 20-22% in three years.
But Trump was holding you back. Laughable.
My standard of living has decreased mostly because my pay (and future pension) have been stolen by the Fed and Treasury via inflation.
When did Americans become such whiners and crybabies? You’re f*cking embarrassing.
Considering the actual impact voting has (with the exception of 5 states), whining provides the only satisfaction.
But how much are your expenses up?
Also, did you change jobs or job responsibilities to get that 20-22% raise or is all that 20-22% just your COLA raise?
Finally, note that at 5% inflation, 1.05^4=1.215 or 21.5% inflation over Bidens 4 years in office so you’d need that 20-22% just to tread water.
The discussion is not about your standard of living, it is about inflation and the debasement of the dollar. Try to keep up. Not sure how you can be doing so well when you are not intelligent enough to understand what the subject of a conversation is…..
And house owners also pay more for local taxes on the rising house value, plus more for house insurance, plus more for repairs. Now are those costs up by more than 25% since 2020? Hell yes
– Homeowners with paid off houses still have to buy goods and services in this inflated economy.
Excellent point! This is becoming a bit of a quagmire for many (myself briefly) that I know. Just because you own your home, it doesn’t mean you have excellent credit, and can get a loan against your Home when you want to.
I have more and more friends that are becoming house poor, as was I briefly, but had money to shift around fortunately, not everyone does unfortunately. Try to get a loan when you’re retired or have downsized your work income going p/t for whatever reason. May not happen without cash or equivalent collateral. Home ownership does not qualify for squat all by itself.
Some have been forced back to work, some, we’re lucky enough to sell some land, but that’s rare, and others got family support, but still owe the money, but to family now. It’s a problem that creeping up very fast on the elderly in Our Country!!!
There is no way the overall price level is up only 25%. Many essentials have seen clean doubles, that’s +100% not 25. There’s a clear discrepancy between what you see in stores, on the market, or on bills and the data the government are using. Across the whole market there’s no way price levels are less than 40-50% higher than pre-Covid.
Home ownership is becoming cement overshoes for many people now. Despite having their mortgage payments fixed, the increases in home values has been an opportunity for States to drive property taxes through the roof. It is not unusual to see property taxes in several States in the range of 10K to 30K a year. Likewise homeowner insurance and HOA fees in several States have increased up to 60% over the past 2-3 years. Home maintenance costs are also outpacing wage growth by a great deal.
Leverage allowed homeowners to benefit from home value outpacing the cost of living in the early and middle stages of the inflation cycle, but it bites them in the backside in the latter stages. The illusion that there is a free lunch is absurd, as many people are now finding out.
Home ownership is now unaffordable for the middle income demographic of the US and that is going to devastate the economy.
I was in such a position after my divorce in 2008 House poor and good paying work was scarce Too young for SS and couldn’t find a tenant for my Warsaw apartment Sold my Hamptons cottage 1400 sq feet for 950k and we moved overseas Best decision I ever made Oh and bought a boatload of Gold in 2016 at 1200 an oz
Did you have any customs issues getting the gold on and off the boat?
If the government stats are all lies, then why is Jdog here looking at them and discussing them? Let me guess, he’s here to protect all those suckers. Wow, how selfless!
I cannot stand lies. You know, like the ones you are here to support…
Exactly. And all subject to revision. And how convenient. They ‘manage’ to get the fake CPI near enough to 2% to provide cover for a cut just b4 the election. Incredible how that happens.
When you control the information, and the education systems, you can ensure the public is not smart enough to realize you are lying.