The Fed’s preferred measure of inflation, the PCE price index, went negative for the month. Let’s discuss.
Chart Notes
- Today the BEA reported that the Personal Consumption Expenditures (PCE) Price Index fell 0.1 percent.
- More accurately, PCE fell 0.07 percent rounded to 0.1 percent.
- Core PCE which excludes food and energy rose 0.1 percent.
- The CPI rose 0.1 percent.
- Core CPI rose 0.3 percent.
- Rent of primary residence rose 0.5 percent.
Market Based Measures
“And now we get to update PCE “market-based” measures which were negative MoM DESPITE including the horribly lagging OER (up 7.3% annualized MoM). Again, substitute the LEADING data from Zillow and we are strongly negative. From June 2022, we’re annualizing 1.48%, right back inline with pre-Covid metrics.”
A Curious Claim that the BLS Is Overstating Rent and Exaggerating Inflation
What About Lags?
I discussed “market-based” measures in A Curious Claim that the BLS Is Overstating Rent and Exaggerating Inflation
Once again, Professor Plum is relying on Zillow. I repeat “If you have a favorite lag period, you can find supporting evidence no matter what it is.”
Please read my post if you haven’t already, because it smashes the idea that BLS rent and OER are not “market-based” numbers.
Rent Jumps Another 0.5 Percent
Rent of primary residence, the cost that best equates to the rent people pay, jumped 0.5 another percent in November.
The headline CPI looks tame in November, rising only 0.1 percent. But for the second month, a good headline number is an energy mirage. Rent, which is sticky, rose at least 0.4 percent for the 28th month.
For discussion, please see Rent Jumps Another 0.5 Percent, Only a Decline in Gasoline Prevents a Hot CPI
PCE vs CPI
So why is the PCE -0.1 percent and the CPI +0.1 percent with core CPI +-0.3 percent?
It has to do with weighting. The PCE includes prices paid on behalf of someone (think Medicare, Medicaid) whereas the CPI only includes prices paid directly by someone.
Thus the CPI overweighs rent while the PCE overweighs medical expenses.
Housing
Neither the PCE nor CPI is a good measure of inflation because neither includes home prices that are on a tear.
This is an enormous mistake by the Fed because inflation matters, not just consumer inflation and the Fed made a huge mess of things.
Professor Plum rails against OER and that is reasonable except for the fact that OER is market based. OER reflects actual rent paid.
The weight is questionable however, because most people own their own homes and do not rent. This is another reason both measures are “bullsheet” but we have what we have.
Five Measures of Inflation Percent Change Year-Over-Year
If you rent or are looking to buy a home, you know damn well how it feels.
About 36 percent of the people rent. About 11 percent want to buy a home.
And those who pay their own medical insurance will tell you how much “bullsheet” is in PCE medical prices.
What About Polls?
The Wall Street Journal reports “Among Democrats and independents who lean that way, 45% say Biden’s policies hurt them personally or had no impact on them. Among voters overall, 53% of voters said Biden’s policies hurt them, and less than a quarter—23%— said they were helped by his policies. Some 49% of voters said Trump’s policies personally helped them, while just 37% said they hurt them.”
Hardly anyone thinks Bidenomics is working. Why? Because the PCE is “Bullsheet”, that’s why.
Zillow is Bullsheet
If rent lagged by a year as Zillow thinks, then Zillow has been wrong for 16 straight months!
Simply put, Zillow is “Bullsheet” too, so stop referring to it.
Rent Will Decelerate, But When?
Year-over-year inflation is dropping. The cheerleaders are out in force. Hooray!
Based on lags, new leases, and units under construction, people have been saying that rent will “soon” decline or “has” declined for two full years!
I say it’s “Bullsheet” and I have been right.
I do expect at some point rent will decline, but when, how fast, and for how long are all unknown.
No One Will Fix This
On September 7 I offered this view: Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
But when do the deficits and debts matter?
That was the focus of a follow-up post on December 3,
When Does US Federal Debt Reach an Unsustainable Level?
Please consider When Does US Federal Debt Reach an Unsustainable Level?
A possible message of the Treasury market and gold is that neither believes the Fed is in control or won’t be starting five years from now.
Transitory to Where?
Cheerleading declines in rent that have not even occurred is ongoing. But let’s assume that sometime soon rent prices stabilize.
How much pent up inflation is on deck? That’s the key question that the cheerleaders miss. I don’t know and they don’t either, but at least I admit that. However, we can discuss the inflationary forces.
Inflationary Forces
- Global wage arbitrage and just-in-time manufacturing have reversed to inflationary onshoring and just-in-case manufacturing.
- Neither party will fix deficits and out of control spending.
- Trump’s tariffs and sanctions were hugely inflationary but Biden is much worse.
- Biden’s energy policy and regulatory madness is hugely inflationary.
- Retiring boomers need more medical care services. Their jobs are replaced by unskilled zoomers with a totally different work ethic.
- Massive wage increases in union contracts over a many year period and ongoing minimum wage hikes in many states.
Biden is Using the Term Bidenomics Again, What Else Can He Do?
Yesterday, I asked Biden is Using the Term Bidenomics Again, What Else Can He Do?
When you have done everything humanly possible to increase inflation and sow the seeds of more inflation, and when the best thing you can come up with is a lie, the fallback strategy of repeating the lie is all you can do.
For years I was one of the biggest deflationistas around.
But many factors supporting lower interest rates and lower inflation have changed 180 degrees from tailwinds to headwinds.
If inflation is transitory, then transitory to what?
For discussion, please see Huge Moves in the Yield Curve This Year, What’s Going On?
Regarding the huge inversion between 1 month and five years then strongly steepening: Could it be the bond market smells a short quick recession followed by a big inflation problem coming down the pike?
It’s possible the Fed delivers Nirvana. But all the cheerleaders will have you believe we are already in it.
Oil up another 2.21 percent today.
In November, the price of raw goods at the grocery store surprisingly declined. Likely, because of government subsidies to the agriculture industry. This allowed MSM to publicize a drop in inflationary costs to prepare this year’s Thanksgiving meal. (During Trump’s tariff war, billions in subsidies were given to agriculture supply chains, that lowered raw consumer prices. The Bank of Japan subsidized lower grocery prices at the start of 2023.) In December, these discounts have largely vanished. Egg prices increased 35 percent. No discounts on meat, except expensive cuts. Large labor raises will kick in at the new year. Increases in recurring payments to utilities, water, insurance and health care have already been announced for next year. Of course these are left out of core inflation measures.
Based on the definition of transitory, the only two things that are not transitory are death and taxes
“Massive wage increases in union contracts”
A complete myth and I’m tired of hearing it repeated.
After adjusting for inflation, UPS drivers are making LESS today than they were in 2018. They got an insulting $1 COLA in 2022.
Which union workers are getting actual (real) wage increases?
Agree. While a few unions (pilots, UAW) have managed to get large pay raises in the last few years, most union workers are lucky to keep up with the CPI. Large union pay raises are newsworthy and the resulting headlines give the appearance that “all” union workers are somehow doing better than everyone else. It also drives the misconception that unions are responsible for inflation.
Since unions represent just 11% of all US workers, and only a small subset of union workers received large pay increases, it is a stretch to think that they are responsible for very much of the inflation that the US experiences.
In addition, it is worth considering what percentage of a product or service that labor represents.
For example; 15% of a vehicles price is labor. And 4-6% of an airline ticket price is pilot salaries.
UAW workers got a total of 6% raises their last contract, so they too did not get enough in the new contract to make up for inflation.
Be patient PapaDave. It will take a year or three for the inflation to ripple through the economy. Maybe even five. Ya gotta start somewhere.
Inflation under comtrol? Hell NO! Prices have not come down. For ever $100 I had in 2020, I would need $18.64 more today to afford the same life style.
Prices do NOT have to come down for inflation to be “under control”. The standard measure of inflation compares today’s price to the price 12 months ago.
The average consumer considers inflation to mean rising prices. When the price of eggs rise from $3 to $4 they call that inflation. If the price of eggs then stays at $4 for the next year, egg inflation is now 0%. If the price goes back down to $3, that would be deflation.
In addition, some prices HAVE come down, such as gasoline: down from $5 to $3. And many people spend a lot on gasoline.
Both the older folks in retirement housing and the low-income folks are feeling the pain.
Looking at the Chart of 5 brings to mind the Chinese proverb, “man with two watches is never sure what time it is”. Update that to 5 watches. But the consensus is down.
Pent-up inflation! The interest on my commercial mortgage just went from 3.19% to 8.49% which turns my cash flow from the property negative. I have to hold rent increases to the government mandated 2.5% which doesn’t help so the pressure is on to return to cash flow positive by other means. Won’t happen in one day but this is built-in inflation.
Nice to see the Government dictate what you can charge for rent, but not dictate what you pay for the Mortgage.
So the Government will then take your property and charge the taxpayers for the remaining amount due, that the property can’t cover via Government’s Rent Controls. Nice…
I was researching current prices for rentals
found one that said majority of tenants were section 8 and that’s why ROI was low and that upside was to start kicking them out and upping rents to new tenants
all I saw was MIS-priced using pro-forma numbers
I’m seeing some relief and more grocery items go on sale, and those discounts are getting deeper. I’m also seeing off-the-shelf electronic boards go on sale, 20% off. What I have not seen is enough inventory reduction by our customers. At least once a week a manager is asking everyone if there is a job that needs help.
Can we truly trust the Government numbers on Inflation, or anything else for that matter? Biden Inc. has spun the Economic, Financial, Government, Private Sector, ETC. Numbers for so long, that they are unrealistically useable for anything now. They are so warped, done and then redone with different variables, fabricated, and then fabricated again and again, to meet whatever numbers at that moment in time they need them to be.
Inflation has not gone away at all, and is merely hidden within the fabricated numbers. You can hide inflation, until you can’t… obviously Biden Inc. still can, and so they will, until at some point that they cant. That is when the Music Stops, Chairs get pulled, and we all fall on our collective a#&#$. Well except the well connected, and Government of course…
“ Can we truly trust the Government numbers on Inflation, or anything else for that matter? ”
This is a constant complaint from many who comment here. And don’t forget to add the presidents name if you don’t like him (Biden, Trump, Obama, Bush, etc).
All of these “numbers”’or “statistics” are just best guesses that attempt to represent the real world. There are also many non-government alternative measures out there, which aren’t any better.
Which is why it is best to not take each number too seriously, and focus more on the trends that are happening over time.
Or, you can just ignore the numbers, because there isn’t anything you can do about them, and focus your attention on what you can control: your own health, happiness and welfare.
Personally, that is what I try to do. In addition, I give thanks for being lucky enough to live in a country that gives me an opportunity to be successful.
Merry Christmas.
Hey Papa, I guess the numbers are just so phony when used for comparison, it’s not worth the trouble. I have tried. I can best guess myself, which is what I have been doing. I just shouldn’t have to, is my point. They should be non-manipulated and accurate numbers to a point. They are just garbage right now…
You are correct: “Which is why it is best to not take each number too seriously” and I don’t.
I also agree with you 100% on the following: “focus your attention on what you can control: your own health, happiness and welfare” And I do indeed!
We certainly are very fortunate to live in America!
Merry Christmas to you as well!
The Dow reached : 1929 to 2000 highs, an all time high, but the DJT, the Dow
Transport, doesn’t confirm it. The DJT lags behind. That might change thanks to the Hooties.
It feels like an 11oz bag of macaroni costs less than a 16oz bag.
Thanks to idiots dumping dogs in the country I usually have around 5 dogs. A pitbull pup around 7 months or so showed up 2 weeks ago. No chip. No one claiming. Im going to keep him he’s a real sweetheart and gets along great with the other animals.
At any rate, my Dogometer Indicator shows inflation and economic conditions are BAD due to the amount of dogs im seeing out here AND the food bill. Ive been here over 30 years and everytime things go to hell I see more stray dogs running around.
Sounds like west Virginia
Absolutely correct! I have a bunch of cats at my house. Neutering/spaying them. I just read people are getting rid of their animals (dumping them) because they can’t afford to take care of them. As a pet owner, food, vet bills, litter all has gone up. These inflation numbers are all BS!!!
If you live in a rent controlled apartment, the lag is even more pronounced. There are a substantial number of renters that are paying far below market value for their units, and landlords can only raise these prices very slowly. Every year the landlord will raise the rent to the max allowed by the law, and it would take a depression for these rental rates to actually fall.
Rent controlled landlords raise to the max help OER : where can they go ?
New homes for sale under construction reached 315K, slightly under 2006 peak. It started to decay. New homes for sale completed have risen sharply. Once they cross 100 home builders will rent them. They will be added to new multi units 5+ under construction for rent. The rental units will be beefed up by the for sale leftovers that didn’t sell. In recession portions of under construction will be abandoned.
Until there is an independent source of inflation report, we will have to live with this humorous inflation numbers. Unlike alternative media, there is only the officialdom hold the monopoly.
Elon Musk to the rescue?
If he saves us like he saved Twitter, we’re in for a rough time.
In general, inflation is always going to tail off at the end of the year due to oil prices easing.
Big whoop tee do. It’s called forming a bottom / trough.
Let’s see what happens as we break out of winter.
With continued massive deficit spending, it’s more likely that inflation will move slowly higher than lower.
In general, construction leads the economy into recession, and like the labor market, construction is remains quite buoyant and will remain so.
Corporate profits are doing great.
The only REAL stress is consumer debt. And even there, it’s limited to the bottom 50% which isn’t going to create a recession all by itself.
Inflation is 80% noticed in energy. Crude oil/gasoline/diesel/natgas etc are the major components of what most people notice as “the public reflectors of inflation.” The whole of the 1970s — Im too young to remember — but I remember gas lines and big cars getting smaller and my candy brought by diesel trucks going up 50%ish in price in 1979. For the moment, wholesale gasoline, diesel and natgas (called TTP gas in Europe) have bottomed in price. Enjoy it. Cause one of the non-energy parts of inflation — rents and property taxes — are NOT going down, as more government people like me retire and have to be funded with not enough saved.
I like your emphasis on what people “notice” regarding rising prices, which the
average person typically calls inflation.
Food, shelter, and energy. Three necessities that people deal with every day. When something you purchase frequently, keeps going up in price, you tend to “notice” and complain and look for someone to blame. Whether it’s Biden, the govt, the oil companies, OPEC, etc. doesn’t matter. Just blame “somebody”.
When those prices come back down, people complain less, and no longer look for someone to blame. Nor do they look for someone to praise.
Regarding gasoline. Oil, and thus gasoline prices rose from around $3/gal to over $5/gal following Russia’s invasion of Ukraine. The US responded in many ways, including SPR releases. The SPR releases were very successful. Now prices are back down to around $3.People are likely relieved, but they are not looking for someone to praise.
I expect upward pressure on oil prices going forward, but not so much pressure on gasoline. A disconnect is growing between oil and gasoline prices.
This is because the demand for oil keeps growing worldwide. Which will raise global oil prices. However, demand for gasoline is beginning to decline in some countries, such as the US. The demand decline is occurring for two reasons; improved efficiency of ICE vehicles, and the increasing sales of EVs and PHEVs. This will help keep a lid on gasoline prices, even if oil prices keep going up. That won’t help food and shelter costs much, but it will help keep driving costs down.
The SPR releases were very successful as you pointed out. It was also a very low-risk way to bring down oil prices at a critical time. It was Biden’s best economic measure and probably his only one that worked.
Spr is not there to game elections. Its there for real emergencies. God forbid a huge earthquakr or china invading taiwan
Pop, thanks for reply. I would also add that we are paying the same for a gallon of gasoline today that we did 11 years ago (chicgogasproces.com), and all these “contained” energy prices should make for good politics — Biden sadly just cant get a break. And yeah, I just think public, market-based prices (like energy prices) are a much better indicator of how things are doing. Food can be butchered meat in a grocery or a bag of chips at a 7-11. And clothing prices have no standards at all
Why is energy in deflation then?
Seasonality? Duh!
It’s not seasonality, the Energy component of CPI is down 5.4% from November 2022 and the gasoline sub component is down 8.9%. Real deflation.
Inflation peaked in June 2022, so everything is down since then. Also, America is producing more oil today than any time in history. That probably has something to do with it. I think FJB’s energy policies are inflationary but not to the extent Mish seems to think they are.
Zillow data isn’t necessarily wrong, but rather it does not correctly reflect the rate of rent change for ALL rental units. I would guess Zillow only tracks units which become available for rent, not rent renewals with existing long term tenants. When open market rent prices sharply increase as during the 2020-2022, the rental units with existing tenants take longer time to catch up to open market prices, either because local area has caps on annual rent increases, or the landlords don’t want to pass sudden increase to tenants, or combination of other reasons. So I agree with Mish, it makes sense that the rising rents could go on for a while despite new Zillow rents falling, e.g. landlord with existing tenant could take 3-4 years to raise rent from $1500 to $2000 despite rents on Zillow falling from $2200 to $2000 (after they jumped from $1500 to $2200 in 2021).
New leases are only a small portion of leases and they do not all happen at once.
I have commented on that before.
8.4% by this report but I have seen higher. I think the census department was at 12%
https://www.rubyhome.com/blog/moving-stats/
Here are my healthcare inflation stats using Christian Healthcare Ministries which I will continue to use since I’m self employed and it’s still cheaper than the alternatives.
2022 19.6% increase
2023 14.4% increase
2024 3.9% increase
You must be hallucinating. According to the BLS, the health insurance index (based on retained earnings!) is lower today than it was in 2018. Wolfstreet did an article on this a month or so ago.
Pure BS!
Don’t worry. Regime media’s overpaid teleprompter readers will keep looking straight into the camera and telling you how awesome this economy is all due to Bidenomics!
Deflation has been around before, but not for a long time. It will change everyones thinking and expectations, as well as our spending.
🤣😂🤣😂🤣🤣 and I bet health insurance rates fell another 34% again.
…. What a complete clownshow this all is
I lost track of all my soaring expenses quite a while ago. Food prices with raging shrinkflation, insurance premiums, HOA fees, restaurant tabs (with much smaller portion sizes), labor costs on car and home repairs, airline tickets, parking fees, processing fees, user fees, recovery fees, surcharges, and all the other disgusting euphemisms for additional taxes and charges have all skyrocketed the past three years under this hideous regime….
Could it be that, like food, 3% of the cost of cereal is the ingredients, and 97% of the cost is the payroll for the guys back at the company, and maybe all the inflation you mention is just companies trying to make back some of the money they lost during Covid? And if so, it’s pretty temporary?
It’s weird. My bank account vehemently disagrees with this data set.
You must not be in the top 40% whose floor is $800 in net worth.
The top 40%, in general, are doing just fine.
$800K