New Nonfarm Hires of 6.343 Million in Jul 2020, New 2.421 Million Full-Time Jobs Created in August 2020, Recovery Without Hiring in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Fifteen Million Fewer Full-Time Jobs In the Global Recession, with Output in the US Reaching a High in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown of Economic Activity in the COVID-19 Event, Youth and Middle-Age Unemployment, United States Inflation, World Cyclical Slow Growth, and Government Intervention in Globalization: Part IV
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
IA1 Hiring Collapse
IA2 Labor Underutilization
ICA3 Fifteen Million Fewer Full-time
Jobs
IA4 Theory and Reality of Cyclical Slow
Growth Not Secular Stagnation: Youth and Middle-Age Unemployment
IC United
States Inflation
IC Long-term US Inflation
ID Current US Inflation
III World Financial Turbulence
IV Global Inflation
V World Economic
Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk
Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe
Haven Currencies
IIIC Appendix on
Fiscal Compact
IIID Appendix on
European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the
Debt Crisis
Chart
I-12 provides the consumer price index NSA from 1913 to 2020. The dominating
characteristic is the increase in slope during the Great Inflation from the
middle of the 1960s through the 1970s. There is long-term inflation in the US
and no evidence of deflation risks.
Chart I-12, US, Consumer Price Index, NSA, 1913-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-13 provides 12-month
percentage changes of the consumer price index from 1914 to 2020. The only
episode of deflation after 1950 is in 2009, which is explained by the reversal
of speculative commodity futures carry trades that were induced by interest
rates driven to zero in a shock of monetary policy in 2008. The only persistent
case of deflation is from 1930 to 1933, which has little if any relevance to
the contemporary United States economy. There are actually three waves of
inflation in the second half of the 1960s, in the mid-1970s and again in the
late 1970s. Inflation rates then stabilized in a range with only two episodes
above 5 percent.
Chart I-13, US, Consumer Price Index, All Items, 12- Month
Percentage Change 1914-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Table I-2
provides annual percentage changes of United States consumer price inflation
from 1914 to 2019. There have been only cases of annual declines of the CPI
after wars:
- World War I minus 10.5
percent in 1921 and minus 6.1 percent in 1922 following cumulative
increases of 83.5 percent in four years from 1917 to 1920 at the average
of 16.4 percent per year
- World War II: minus 1.2
percent in 1949 following cumulative 33.9 percent in three years from 1946
to 1948 at average 10.2 percent per year
- Minus 0.4 percent in
1955 two years after the end of the Korean War
- Minus 0.4 percent in
2009.
- The decline of 0.4
percent in 2009 followed increase of 3.8 percent in 2008 and is explained
by the reversal of speculative carry trades into commodity futures that were
created in 2008 as monetary policy rates were driven to zero. The reversal
occurred after misleading statement on toxic assets in banks in the
proposal for TARP (Cochrane and Zingales 2009).
There were
declines of 1.7 percent in both 1927 and 1928 during the episode of revival of
rules of the gold standard. The only persistent deflationary period since 1914
was during the Great Depression in the years from 1930 to 1933 and again in
1938-1939. Consumer prices increased only 0.1 percent in 2015 because of the
collapse of commodity prices from artificially high levels induced by zero
interest rates. Consumer prices increased 1.3 percent in 2016, increasing at
2.1 percent in 2017. Consumer prices increased 2.4 percent in 2018, increasing
at 1.8 percent in 2019. Fear of deflation based on that experience does not
justify unconventional monetary policy of zero interest rates that has failed
to stop deflation in Japan. Financial repression causes far more adverse
effects on allocation of resources by distorting the calculus of risk/returns
than alleged employment-creating effects or there would not be current recovery
without jobs and hiring after zero interest rates since Dec 2008 and intended
now forever in a self-imposed forecast growth and employment mandate of
monetary policy. Unconventional monetary policy drives wide swings in
allocations of positions into risk financial assets that generate instability
instead of intended pursuit of prosperity without inflation. There is
insufficient knowledge and imperfect tools to maintain the gap of actual
relative to potential output constantly at zero while restraining inflation in
an open interval of (1.99, 2.0). Symmetric targets appear to have been
abandoned in favor of a self-imposed single jobs mandate of easing monetary
policy even with the economy growing at or close to potential output that is
actually a target of growth forecast. The impact on the overall economy and the
financial system of errors of policy are magnified by large-scale policy doses
of trillions of dollars of quantitative easing and zero interest rates. The US
economy has been experiencing financial repression as a result of negative real
rates of interest during nearly a decade and programmed in monetary policy
statements until 2015 or, for practical purposes, forever. The essential
calculus of risk/return in capital budgeting and financial allocations has been
distorted. If economic perspectives are doomed until 2015 such as to warrant
zero interest rates and open-ended bond-buying by “printing” digital bank
reserves (http://cmpassocregulationblog.blogspot.com/2010/12/is-fed-printing-money-what-are.html; see Shultz et
al 2012), rational investors and consumers will not invest and consume until
just before interest rates are likely to increase. Monetary policy statements
on intentions of zero interest rates for another three years or now virtually
forever discourage investment and consumption or aggregate demand that can
increase economic growth and generate more hiring and opportunities to increase
wages and salaries. The doom scenario used to justify monetary policy
accentuates adverse expectations on discounted future cash flows of potential economic
projects that can revive the economy and create jobs. If it were possible to
project the future with the central tendency of the monetary policy scenario
and monetary policy tools do exist to reverse this adversity, why the tools
have not worked before and even prevented the financial crisis? If there is
such thing as “monetary policy science”, why it has such poor record and
current inability to reverse production and employment adversity? There is no
excuse of arguing that additional fiscal measures are needed because they were
deployed simultaneously with similar ineffectiveness. Jon Hilsenrath, writing
on “New view into Fed’s response to crisis,” on Feb 21, 2014, published in the
Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzes
1865 pages of transcripts of eight formal and six emergency policy meetings at
the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). If there
were an infallible science of central banking, models and forecasts would
provide accurate information to policymakers on the future course of the
economy in advance. Such forewarning is essential to central bank science
because of the long lag between the actual impulse of monetary policy and the
actual full effects on income and prices many months and even years ahead
(Romer and Romer 2004, Friedman 1961, 1953, Culbertson 1960, 1961, Batini and
Nelson 2002). Jon Hilsenrath, writing on “New view into Fed’s response to
crisis,” on Feb 21, 2014, published in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303775504579396803024281322?mod=WSJ_hp_LEFTWhatsNewsCollection), analyzed
1865 pages of transcripts of eight formal and six emergency policy meetings at
the Fed in 2008 (http://www.federalreserve.gov/monetarypolicy/fomchistorical2008.htm). Jon
Hilsenrath demonstrates that Fed policymakers frequently did not understand the
current state of the US economy in 2008 and much less the direction of income
and prices. The conclusion of Friedman (1953) that monetary impulses increase
financial and economic instability because of lags in anticipating needs of
policy, taking policy decisions and effects of decisions. This a fortiori true
when untested unconventional monetary policy in gargantuan doses shocks the
economy and financial markets.
Table I-2, US,
Annual CPI Inflation ∆% 1914-2019
|
Year |
Annual ∆% |
|
1914 |
1.0 |
|
1915 |
1.0 |
|
1916 |
7.9 |
|
1917 |
17.4 |
|
1918 |
18.0 |
|
1919 |
14.6 |
|
1920 |
15.6 |
|
1921 |
-10.5 |
|
1922 |
-6.1 |
|
1923 |
1.8 |
|
1924 |
0.0 |
|
1925 |
2.3 |
|
1926 |
1.1 |
|
1927 |
-1.7 |
|
1928 |
-1.7 |
|
1929 |
0.0 |
|
1930 |
-2.3 |
|
1931 |
-9.0 |
|
1932 |
-9.9 |
|
1933 |
-5.1 |
|
1934 |
3.1 |
|
1935 |
2.2 |
|
1936 |
1.5 |
|
1937 |
3.6 |
|
1938 |
-2.1 |
|
1939 |
-1.4 |
|
1940 |
0.7 |
|
1941 |
5.0 |
|
1942 |
10.9 |
|
1943 |
6.1 |
|
1944 |
1.7 |
|
1945 |
2.3 |
|
1946 |
8.3 |
|
1947 |
14.4 |
|
1948 |
8.1 |
|
1949 |
-1.2 |
|
1950 |
1.3 |
|
1951 |
7.9 |
|
1952 |
1.9 |
|
1953 |
0.8 |
|
1954 |
0.7 |
|
1955 |
-0.4 |
|
1956 |
1.5 |
|
1957 |
3.3 |
|
1958 |
2.8 |
|
1959 |
0.7 |
|
1960 |
1.7 |
|
1961 |
1.0 |
|
1962 |
1.0 |
|
1963 |
1.3 |
|
1964 |
1.3 |
|
1965 |
1.6 |
|
1966 |
2.9 |
|
1967 |
3.1 |
|
1968 |
4.2 |
|
1969 |
5.5 |
|
1970 |
5.7 |
|
1971 |
4.4 |
|
1972 |
3.2 |
|
1973 |
6.2 |
|
1974 |
11.0 |
|
1975 |
9.1 |
|
1976 |
5.8 |
|
1977 |
6.5 |
|
1978 |
7.6 |
|
1979 |
11.3 |
|
1980 |
13.5 |
|
1981 |
10.3 |
|
1982 |
6.2 |
|
1983 |
3.2 |
|
1984 |
4.3 |
|
1985 |
3.6 |
|
1986 |
1.9 |
|
1987 |
3.6 |
|
1988 |
4.1 |
|
1989 |
4.8 |
|
1990 |
5.4 |
|
1991 |
4.2 |
|
1992 |
3.0 |
|
1993 |
3.0 |
|
1994 |
2.6 |
|
1995 |
2.8 |
|
1996 |
3.0 |
|
1997 |
2.3 |
|
1998 |
1.6 |
|
1999 |
2.2 |
|
2000 |
3.4 |
|
2001 |
2.8 |
|
2002 |
1.6 |
|
2003 |
2.3 |
|
2004 |
2.7 |
|
2005 |
3.4 |
|
2006 |
3.2 |
|
2007 |
2.8 |
|
2008 |
3.8 |
|
2009 |
-0.4 |
|
2010 |
1.6 |
|
2011 |
3.2 |
|
2012 |
2.1 |
|
2013 |
1.5 |
|
2014 |
1.6 |
|
2015 |
0.1 |
|
2016 |
1.3 |
|
2017 |
2.1 |
|
2018 |
2.4 |
|
2019 |
1.8 |
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-14 provides the consumer price index excluding
food and energy from 1957 to 2020. There is long-term inflation in the US
without episodes of persistent deflation.
Chart I-14, US, Consumer Price Index Excluding Food and
Energy, NSA, 1957-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-15 provides 12-month percentage
changes of the consumer price index excluding food and energy from 1958 to
2020. There are three waves of inflation in the 1970s during the Great
Inflation. There is no episode of deflation.
Chart I-15, US, Consumer Price Index Excluding Food and
Energy, 12-Month Percentage Change, NSA, 1958-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
The consumer price index of
housing is in Chart I-16. There was also acceleration during the Great Inflation
of the 1970s. The index flattens after the global recession in IVQ2007 to
IIQ2009. Housing prices collapsed under the weight of construction of several
times more housing than needed. Surplus housing originated in subsidies and artificially
low interest rates in the shock of unconventional monetary policy in 2003 to
2004 in fear of deflation.
Chart I-16, US, Consumer Price Index Housing, NSA, 1967-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-17 provides 12-month
percentage changes of the housing CPI. The Great Inflation also had extremely
high rates of housing inflation. Housing is considered as potential hedge of
inflation.
Chart I-17, US, Consumer Price Index, Housing, 12- Month
Percentage Change, NSA, 1968-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
ID Current
US Inflation. Consumer price inflation has fluctuated in recent months.
Table I-3 provides 12-month consumer price inflation in Aug 2020 and annual
equivalent percentage changes for the months from Jun 2020 to Aug 2020 of the
CPI and major segments. The final column provides inflation from Jul 2020 to Aug
2020. CPI inflation increased 1.3 percent in the 12 months ending in Aug 2020.
The annual equivalent rate from Jun 2020 to Aug 2020 was 6.6 percent in the new
episode of reversal and renewed positions of carry trades from zero interest
rates to commodities exposures; and the monthly inflation rate of 0.4 percent
annualizes at 4.9 percent with oscillating carry trades at the margin. These
inflation rates fluctuate in accordance with inducement of risk appetite or
frustration by risk aversion of carry trades from zero interest rates to
commodity futures. At the margin, the decline in commodity prices in sharp
recent risk aversion in commodities markets caused lower inflation worldwide
(with return in some countries in Dec 2012 and Jan-Feb 2013) that followed a
jump in Aug-Sep 2012 because of the relaxed risk aversion resulting from the
bond-buying program of the European Central Bank or Outright Monetary
Transactions (OMT) (https://www.ecb.europa.eu/press/pr/date/2012/html/pr120906_1.en.html). Carry trades
moved away from commodities into stocks with resulting weaker commodity prices
and stronger equity valuations. There is reversal of exposures in commodities
but with preferences of equities by investors. Geopolitical events in Eastern
Europe and the Middle East together with economic conditions worldwide are
inducing risk concerns in commodities at the margin. With zero or very low
interest rates, commodity prices would increase again in an environment of risk
appetite, as shown in past oscillating inflation. Excluding food and energy,
core CPI inflation was 1.7 percent in the 12 months ending in Aug 2020 and 4.9
percent in annual equivalent from Jun 2020 to Aug 2020. There is no deflation
in the US economy that could justify further unconventional monetary policy,
which is now open-ended or forever with very low interest rates and cessation
of bond-buying by the central bank but with reinvestment of interest and
principal, or QE→∞ even if the economy
grows back to potential. The FOMC is engaging in renewed increases in the Fed
balance sheet. Financial repression of very low interest rates is now intended
as a permanent distortion of resource allocation by clouding risk/return decisions,
preventing the economy from expanding along its optimal growth path. The FOMC
had engaged in recent increases of purchases of securities after reducing
interest rates in the global recession, with output in the US reaching a
high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. On Aug 27, 2020, the Federal Open Market Committee changed its
Longer-Run Goals and Monetary Policy Strategy, including the following (https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm): “The
Committee judges that longer-term inflation expectations that are well anchored
at 2 percent foster price stability and moderate long-term interest rates and
enhance the Committee's ability to promote maximum employment in the face of
significant economic disturbances. In order to anchor longer-term inflation
expectations at this level, the Committee seeks to achieve inflation that
averages 2 percent over time, and therefore judges that, following periods when
inflation has been running persistently below 2 percent, appropriate monetary
policy will likely aim to achieve inflation moderately above 2 percent for some
time.” The new policy can affect relative exchange rates depending on relative
inflation rates and country risk issues. Consumer food prices in the US increased 4.1
percent in 12 months ending in Aug 2020 and changed at 1.2 percent in annual
equivalent from Jun 2020 to Aug 2020. Monetary policies stimulating carry
trades of commodities futures that increase prices of food constitute a highly
regressive tax on lower income families for whom food is a major portion of the
consumption basket especially with wage increases below inflation in a recovery
without hiring (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/08/nonfarm-hires-jump-64.html). Energy
consumer prices decreased 9.0 percent in 12 months, increased at 39.6 percent
in annual equivalent from Jun 2020 to Aug 2020 and increased 0.9 percent in Aug
2020 or at 11.4 percent in annual equivalent. Waves of inflation are induced by
carry trades from zero interest rates to commodity futures, which are unwound
and repositioned during alternating risk aversion and risk appetite originating
in the European debt crisis and increasingly in growth, soaring debt and
politics in China. For lower income families, food and energy are a major part
of the family budget. Inflation is not persistently low or threatening
deflation in annual equivalent in any of the categories in Table I-2 but simply
reflecting waves of inflation originating in carry trades. Zero interest rates
induce carry trades into commodity futures positions with episodes of risk
aversion and portfolio reallocations causing fluctuations that determine an
upward trend of prices. There are now exceptional effects on prices in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Table I-3, US, Consumer Price Index Percentage Changes 12 months
NSA and Annual Equivalent ∆%
|
|
% RI |
∆% 12 Months Aug 2020/Aug |
∆% Annual Equivalent Jun 2020 to Aug 2020 SA |
∆% Aug 2020/Jul 2020 SA |
|
CPI All Items |
100.000 |
1.3 |
6.6 |
0.4 |
|
CPI ex Food and Energy |
79.695 |
1.7 |
4.9 |
0.4 |
|
Food |
14.133 |
4.1 |
1.2 |
0.1 |
|
Food at Home |
7.853 |
4.6 |
-2.0 |
-0.1 |
|
Food Away from Home |
6.279 |
3.5 |
5.3 |
0.3 |
|
Energy |
6.172 |
-9.0 |
39.6 |
0.9 |
|
Gasoline |
2.832 |
-16.8 |
114.1 |
2.0 |
|
Electricity |
2.488 |
-0.1 |
-0.8 |
-0.2 |
|
Commodities less Food and Energy |
20.080 |
0.4 |
7.9 |
1.0 |
|
New Vehicles |
3.744 |
0.7 |
3.2 |
0.0 |
|
Used Cars and Trucks |
2.592 |
4.0 |
28.8 |
5.4 |
|
Medical Care Commodities |
1.616 |
0.8 |
0.4 |
-0.1 |
|
Apparel |
2.673 |
-5.9 |
14.5 |
0.6 |
|
Services Less Energy Services |
59.615 |
2.2 |
4.5 |
0.2 |
|
Shelter |
33.378 |
2.3 |
1.6 |
0.1 |
|
Rent of Primary Residence |
7.846 |
2.9 |
1.6 |
0.1 |
|
Owner’s Equivalent Rent of Residences |
24.207 |
2.7 |
1.6 |
0.1 |
|
Transportation Services |
5.169 |
-4.0 |
25.2 |
0.0 |
|
Medical Care Services |
7.368 |
5.3 |
4.5 |
0.1 |
% RI: Percent Relative Importance
Source: US
Bureau of Labor Statistics https://www.bls.gov/cpi/
Table I-4 provides weights of components in the
consumer price of the US in Dec 2012. Housing has a weight of 41.021 percent.
The combined weight of housing and transportation is 57.867 percent or more
than one-half of consumer expenditures of all urban consumers. The combined
weight of housing, transportation and food and beverages is 73.128 percent of
the US CPI. Table I-3 provides relative importance of key items in Jul 2020.
Table I-4, US,
Relative Importance, 2009-2010 Weights, of Components in the Consumer Price
Index, US City Average, Dec 2012
|
All Items |
100.000 |
|
Food and
Beverages |
15.261 |
|
Food |
14.312 |
|
Food
at home |
8.898 |
|
Food
away from home |
5.713 |
|
Housing |
41.021 |
|
Shelter |
31.681 |
|
Rent
of primary residence |
6.545 |
|
Owners’ equivalent rent |
22.622 |
|
Apparel |
3.564 |
|
Transportation |
16.846 |
|
Private Transportation |
15.657 |
|
New
vehicles |
3.189 |
|
Used
cars and trucks |
1.844 |
|
Motor
fuel |
5.462 |
|
Gasoline |
5.274 |
|
Medical Care |
7.163 |
|
Medical care commodities |
1.714 |
|
Medical care services |
5.448 |
|
Recreation |
5.990 |
|
Education and
Communication |
6.779 |
|
Other Goods
and Services |
3.376 |
Refers to all urban consumers, covering approximately 87 percent
of the US population (see http://www.bls.gov/cpi/cpiovrvw.htm#item1). Source: US
Bureau of Labor Statistics http://www.bls.gov/cpi/cpiri2011.pdf http://www.bls.gov/cpi/cpiriar.htm http://www.bls.gov/cpi/cpiri2012.pdf
Chart I-18 provides the US consumer price index for
housing from 2001 to 2020. Housing prices rose sharply during the decade until
the bump of the global recession and increased again in 2011-2012 with some
stabilization in 2013. There is renewed increase in 2014 followed by
stabilization and renewed increase in 2015-2020. The CPI excluding housing
would likely show much higher inflation. The commodity carry trades resulting
from unconventional monetary policy have compressed income remaining after
paying for indispensable shelter.
Chart I-18, US, Consumer Price Index, Housing, NSA, 2001-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-19 provides 12-month percentage changes of the housing
CPI. Percentage changes collapsed during the global recession but have been
rising into positive territory in 2011 and 2012-2013 but with the rate
declining and then increasing into 2014. There is decrease into 2015 followed
by stability and marginal increase in 2016-2020 followed by initial decline in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart I-19, US, Consumer Price Index, Housing, 12-Month
Percentage Change, NSA, 2001-2020
Source: US Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
There have been
waves of consumer price inflation in the US in 2011 and into 2020 (https://cmpassocregulationblog.blogspot.com/2020/08/d-ollar-devaluation-and-yuan.html and earlier https://cmpassocregulationblog.blogspot.com/2020/07/contraction-of-household-wealth-by-14.html) that are
illustrated in Table I-5. The first wave occurred in Jan-Apr 2011 and
was caused by the carry trade of commodity prices induced by unconventional
monetary policy of zero interest rates. Cheap money at zero opportunity cost in
environment of risk appetite was channeled into financial risk assets, causing
increases in commodity prices. The annual equivalent rate of increase of the
all-items CPI in Jan-Apr 2011 was 4.9 percent and the CPI excluding food and
energy increased at annual equivalent rate of 1.8 percent. The second wave
occurred during the collapse of the carry trade from zero interest rates to
exposures in commodity futures because of risk aversion in financial markets
created by the sovereign debt crisis in Europe. The annual equivalent rate of
increase of the all-items CPI dropped to 1.8 percent in May-Jun 2011 while the
annual equivalent rate of the CPI excluding food and energy increased at 2.4
percent. In the third wave in Jul-Sep 2011, annual equivalent CPI
inflation rose to 3.2 percent while the core CPI increased at 2.4 percent. The fourth
wave occurred in the form of increase of the CPI all-items annual
equivalent rate to 1.8 percent in Oct-Nov 2011 with the annual equivalent rate
of the CPI excluding food and energy remaining at 2.4 percent. The fifth
wave occurred in Dec 2011 to Jan 2012 with annual equivalent headline
inflation of 1.8 percent and core inflation of 2.4 percent. In the sixth
wave, headline CPI inflation increased at annual equivalent 2.4 percent in
Feb-Apr 2012 and 2.0 percent for the core CPI. The seventh wave in
May-Jul occurred with annual equivalent inflation of minus 1.2 percent for the
headline CPI in May-Jul 2012 and 2.0 percent for the core CPI. The eighth
wave is with annual equivalent inflation of 6.8 percent in Aug-Sep 2012 but
5.7 percent including Oct. In the ninth wave, annual equivalent
inflation in Nov 2012 was minus 2.4 percent under the new shock of risk
aversion and 0.0 percent in Dec 2012 with annual equivalent of 0.0 percent in
Nov 2012-Jan 2013 and 2.0 percent for the core CPI. In the tenth wave,
annual equivalent of the headline CPI was 6.2 percent in Feb 2013 and 1.2
percent for the core CPI. In the eleventh wave, annual equivalent was minus
3.0 percent in Mar-Apr 2013 and 0.6 percent for the core index. In the twelfth
wave, annual equivalent inflation was 1.4 percent in May-Sep 2013 and 2.2
percent for the core CPI. In the thirteenth wave, annual equivalent CPI
inflation in Oct-Nov 2013 was 1.8 percent and 1.8 percent for the core CPI.
Inflation returned in the fourteenth wave at 2.4 percent for the
headline CPI index and 1.8 percent for the core CPI in annual equivalent for
Dec 2013 to Mar 2014. In the fifteenth wave, inflation moved to annual
equivalent 1.8 percent for the headline index in Apr-Jul 2014 and 2.1 percent
for the core index. In the sixteenth wave, annual equivalent inflation
was 0.0 percent in Aug 2014 and 1.2 percent for the core index. In the seventeenth
wave, annual equivalent inflation was 0.0 percent for the headline CPI and
2.4 percent for the core in Sep-Oct 2014. In the eighteenth wave, annual
equivalent inflation was minus 4.3 percent for the headline index in Nov
2014-Jan 2015 and 1.2 percent for the core. In the nineteenth wave,
annual equivalent inflation was 3.2 percent for the headline index and 2.2
percent for the core index in Feb-Jun 2015. In the twentieth wave,
annual equivalent inflation was at 2.4 percent in Jul 2015 for the headline and
core indexes. In the twenty-first wave,
headline consumer prices decreased at 1.2 percent in annual equivalent
in Aug-Sep 2015 while core prices increased at annual equivalent 1.8 percent.
In the twenty-second wave, consumer prices increased at annual
equivalent 1.2 percent for the central index and 2.4 percent for the core in
Oct-Nov 2015. In the twenty-third wave, annual equivalent inflation was
minus 0.6 percent for the headline CPI in Dec 2015 to Jan 2016 and 1.8 percent
for the core. In the twenty-fourth wave, annual equivalent was minus 1.2
percent and 2.4 percent for the core in Feb 2016. In the twenty-fifth wave,
annual equivalent inflation was at 3.7 percent for the central index in Mar-Apr
2016 and at 1.8 percent for the core index. In the twenty-sixth wave,
annual equivalent inflation was 3.7 percent for the central CPI in May-Jun 2016
and 2.4 percent for the core CPI. In the twenty-seventh wave, annual
equivalent inflation was 0.0 percent for the central CPI and 1.2 percent for
the core in Jul 2016. In the twenty-eighth wave, annual equivalent
inflation was 2.4 percent for the headline CPI in Aug 2016 and 2.4 percent for
the core. In the twenty-ninth wave, CPI prices increased at annual
equivalent 2.4 percent in Sep-Oct 2016 while the core CPI increased at 1.2 percent.
In the thirtieth wave, annual equivalent CPI prices increased at 2.4
percent in Nov-Dec 2016 while the core CPI increased at 2.4 percent. In the thirty-first
wave, CPI prices increased at annual equivalent 4.9 percent in Jan 2017
while the core index increased at 2.4 percent. In the thirty-second wave,
CPI prices changed at annual equivalent 1.2 percent in Feb 2017 while the core
increased at 2.4 percent. In the thirty-third wave, CPI prices decreased
at annual equivalent 1.2 percent in Mar 2017 while the core index changed at
0.0 percent. In the thirty-fourth wave, CPI prices increased at 1.2 percent
annual equivalent in Apr 2017 while the core index increased at 1.2 percent. In
the thirty-fifth wave, CPI prices changed at 0.0 annual equivalent in
May-Jun 2017 while core prices increased at 1.2 percent. In the thirty-sixth
wave, CPI prices increased at annual equivalent 1.2 percent in Jul 2017
while core prices increased at 1.2 percent. In the thirty-seventh wave,
CPI prices increased at annual equivalent 5.5 percent in Aug-Sep 2017 while
core prices increased at 1.8 percent. In the thirty-eighth wave, CPI
prices increased at 2.4 percent annual equivalent in Oct-Nov 2017 while core
prices increased at 2.4 percent. In the thirty-ninth wave, CPI prices increased
at 3.7 percent annual equivalent in Dec 2017-Feb 2018 while core prices
increased at 2.8 percent. In the fortieth wave, CPI prices changed at
0.0 percent annual equivalent in Mar 2018 while core prices increased at 2.4
percent. In the forty-first wave, CPI prices increased at 3.0 percent
annual equivalent in Apr-May 2018 while core prices increased at 2.4 percent.
In the forty-second wave, CPI prices increased at 1.8 percent in Jun-Sep
2018 while core prices increased at 1.8 percent. In the forty-third wave,
CPI prices increased at annual equivalent 2.4 percent in Oct 2018 while core
prices increased at 1.2 percent. In the forty-fourth wave, CPI prices
changed at 0.0 percent annual equivalent in Nov 2018-Jan 2019 while core prices
increased at 2.4 percent. In the forty-fifth wave, CPI prices increased
at 3.7 percent annual equivalent in Feb-Apr 2019 while core prices increased at
2.0 percent. In the forty-sixth wave, CPI prices increased at 1.2
percent annual equivalent in May-Jun 2019 while core prices increased at 2.4
percent. In the forty-seventh wave, CPI prices increased at 3.7 percent
annual equivalent in Jul 2019 while core prices increased at 3.7 percent. In
the forty-eighth wave, CPI prices increased at 1.2 percent annual
equivalent in Aug-Sep 2019 while core prices increased at 2.4 percent. In the forty-ninth
wave, CPI prices increased at 2.4 percent annual equivalent in Oct-Dec 2019
while core prices increased at 1.6 percent. In the fiftieth wave, CPI
prices increased at 1.2 percent annual equivalent in Jan-Feb 2020 and core
prices at 2.4 percent. In the fifty-first wave, CPI prices decreased at
annual equivalent 5.1 percent in Mar-May 2020 while core prices decreased at
2.4 percent. In the fifty-second wave, CPI prices increased at 6.6
percent annual equivalent in Jun-Aug 2020 and core prices increased at 4.9
percent. The conclusion is that inflation accelerates and decelerates in
unpredictable fashion because of shocks or risk aversion and portfolio
reallocations in carry trades from zero interest rates to commodity
derivatives.
Table I-5, US,
Headline and Core CPI Inflation Monthly SA and 12 Months NSA ∆%
|
|
All
Items SA Month |
All Items NSA
12 month |
Core SA |
Core NSA |
|
Aug |
0.4 |
1.3 |
0.4 |
1.7 |
|
Jul |
0.6 |
1.0 |
0.6 |
1.6 |
|
Jun |
0.6 |
0.6 |
0.2 |
1.2 |
|
AE ∆% Jun-Aug |
6.6 |
|
4.9 |
|
|
May |
-0.1 |
0.1 |
-0.1 |
1.2 |
|
Apr |
-0.8 |
0.3 |
-0.4 |
1.4 |
|
Mar |
-0.4 |
1.5 |
-0.1 |
2.1 |
|
AE ∆% Mar-May |
-5.1 |
|
-2.4 |
|
|
Feb |
0.1 |
2.3 |
0.2 |
2.4 |
|
Jan |
0.1 |
2.5 |
0.2 |
2.3 |
|
AE ∆% Jan-Feb |
1.2 |
|
2.4 |
|
|
Dec 2019 |
0.2 |
2.3 |
0.1 |
2.3 |
|
Nov |
0.2 |
2.1 |
0.2 |
2.3 |
|
Oct |
0.2 |
1.8 |
0.1 |
2.3 |
|
AE ∆% Oct-Dec |
2.4 |
|
1.6 |
|
|
Sep |
0.1 |
1.7 |
0.2 |
2.4 |
|
Aug |
0.1 |
1.7 |
0.2 |
2.4 |
|
AE ∆% Aug-Sep |
1.2 |
|
2.4 |
|
|
Jul |
0.3 |
1.8 |
0.3 |
2.2 |
|
AE ∆% Jul |
3.7 |
|
3.7 |
|
|
Jun |
0.1 |
1.6 |
0.3 |
2.1 |
|
May |
0.1 |
1.8 |
0.1 |
2.0 |
|
AE ∆% May-Jun |
1.2 |
|
2.4 |
|
|
Apr |
0.3 |
2.0 |
0.2 |
2.1 |
|
Mar |
0.4 |
1.9 |
0.2 |
2.0 |
|
Feb |
0.2 |
1.5 |
0.1 |
2.1 |
|
AE ∆% Feb-Apr |
3.7 |
|
2.0 |
|
|
Jan |
0.0 |
1.6 |
0.2 |
2.2 |
|
Dec 2018 |
0.0 |
1.9 |
0.2 |
2.2 |
|
Nov |
0.0 |
2.2 |
0.2 |
2.2 |
|
AE ∆% Nov-Jan |
0.0 |
|
2.4 |
|
|
Oct |
0.2 |
2.5 |
0.1 |
2.1 |
|
AE ∆% Oct |
2.4 |
|
1.2 |
|
|
Sep |
0.1 |
2.3 |
0.2 |
2.2 |
|
Aug |
0.2 |
2.7 |
0.1 |
2.2 |
|
Jul |
0.1 |
2.9 |
0.2 |
2.4 |
|
Jun |
0.2 |
2.9 |
0.1 |
2.3 |
|
AE ∆% Jun-Sep |
1.8 |
|
1.8 |
|
|
May |
0.3 |
2.8 |
0.2 |
2.2 |
|
Apr |
0.2 |
2.5 |
0.2 |
2.1 |
|
AE ∆% Apr-May |
3.0 |
|
2.4 |
|
|
Mar |
0.0 |
2.4 |
0.2 |
2.1 |
|
AE ∆% Mar |
0.0 |
|
2.4 |
|
|
Feb |
0.3 |
2.2 |
0.2 |
1.8 |
|
Jan |
0.4 |
2.1 |
0.3 |
1.8 |
|
Dec 2017 |
0.2 |
2.1 |
0.2 |
1.8 |
|
AE ∆% Dec-Feb |
3.7 |
|
2.8 |
|
|
Nov |
0.3 |
2.2 |
0.1 |
1.7 |
|
Oct |
0.1 |
2.0 |
0.3 |
1.8 |
|
AE ∆% Oct-Nov |
2.4 |
|
2.4 |
|
|
Sep |
0.5 |
2.2 |
0.1 |
1.7 |
|
Aug |
0.4 |
1.9 |
0.2 |
1.7 |
|
AE ∆% Aug-Sep |
5.5 |
|
1.8 |
|
|
Jul |
0.1 |
1.7 |
0.1 |
1.7 |
|
AE ∆% Jul |
1.2 |
|
1.2 |
|
|
Jun |
0.1 |
1.6 |
0.1 |
1.7 |
|
May |
-0.1 |
1.9 |
0.1 |
1.7 |
|
AE ∆% May-Jun |
0.0 |
|
1.2 |
|
|
Apr |
0.1 |
2.2 |
0.1 |
1.9 |
|
AE ∆% Apr |
1.2 |
|
1.2 |
|
|
Mar |
-0.1 |
2.4 |
0.0 |
2.0 |
|
AE ∆% Mar |
-1.2 |
|
0.0 |
|
|
Feb |
0.1 |
2.7 |
0.2 |
2.2 |
|
AE ∆% Feb |
1.2 |
|
2.4 |
|
|
Jan |
0.4 |
2.5 |
0.2 |
2.3 |
|
AE ∆% Jan |
4.9 |
|
2.4 |
|
|
Dec 2016 |
0.3 |
2.1 |
0.2 |
2.2 |
|
Nov |
0.1 |
1.7 |
0.2 |
2.1 |
|
AE ∆% Nov-Dec |
2.4 |
|
2.4 |
|
|
Oct |
0.2 |
1.6 |
0.1 |
2.1 |
|
Sep |
0.2 |
1.5 |
0.1 |
2.2 |
|
AE ∆% Sep-Oct |
2.4 |
|
1.2 |
|
|
Aug |
0.2 |
1.1 |
0.2 |
2.3 |
|
AE ∆ Aug |
2.4 |
|
2.4 |
|
|
Jul |
0.0 |
0.8 |
0.1 |
2.2 |
|
AE ∆% Jul |
0.0 |
|
1.2 |
|
|
Jun |
0.3 |
1.0 |
0.2 |
2.2 |
|
May |
0.3 |
1.0 |
0.2 |
2.2 |
|
AE ∆% May-Jun |
3.7 |
|
2.4 |
|
|
Apr |
0.4 |
1.1 |
0.2 |
2.1 |
|
Mar |
0.2 |
0.9 |
0.1 |
2.2 |
|
AE ∆% Mar-Apr |
3.7 |
|
1.8 |
|
|
Feb |
-0.1 |
1.0 |
0.2 |
2.3 |
|
AE ∆% Feb |
-1.2 |
|
2.4 |
|
|
Jan |
0.0 |
1.4 |
0.2 |
2.2 |
|
Dec 2015 |
-0.1 |
0.7 |
0.1 |
2.1 |
|
AE ∆% Dec-Jan |
-0.6 |
|
1.8 |
|
|
Nov |
0.1 |
0.5 |
0.2 |
2.0 |
|
Oct |
0.1 |
0.2 |
0.2 |
1.9 |
|
AE ∆% Oct-Nov |
1.2 |
|
2.4 |
|
|
Sep |
-0.2 |
0.0 |
0.2 |
1.9 |
|
Aug |
0.0 |
0.2 |
0.1 |
1.8 |
|
AE ∆% Aug-Sep |
-1.2 |
|
1.8 |
|
|
Jul |
0.2 |
0.2 |
0.2 |
1.8 |
|
AE ∆% Jul |
2.4 |
|
2.4 |
|
|
Jun |
0.3 |
0.1 |
0.2 |
1.8 |
|
May |
0.3 |
0.0 |
0.1 |
1.7 |
|
Apr |
0.1 |
-0.2 |
0.2 |
1.8 |
|
Mar |
0.3 |
-0.1 |
0.2 |
1.8 |
|
Feb |
0.3 |
0.0 |
0.2 |
1.7 |
|
AE ∆% Feb-Jun |
3.2 |
|
2.2 |
|
|
Jan |
-0.6 |
-0.1 |
0.1 |
1.6 |
|
Dec 2014 |
-0.3 |
0.8 |
0.1 |
1.6 |
|
Nov |
-0.2 |
1.3 |
0.1 |
1.7 |
|
AE ∆% Nov-Jan |
-4.3 |
|
1.2 |
|
|
Oct |
0.0 |
1.7 |
0.2 |
1.8 |
|
Sep |
0.0 |
1.7 |
0.2 |
1.7 |
|
AE ∆% Sep-Oct |
0.0 |
|
2.4 |
|
|
Aug |
0.0 |
1.7 |
0.1 |
1.7 |
|
AE ∆% Aug |
0.0 |
|
1.2 |
|
|
Jul |
0.1 |
2.0 |
0.2 |
1.9 |
|
Jun |
0.1 |
2.1 |
0.1 |
1.9 |
|
May |
0.2 |
2.1 |
0.2 |
2.0 |
|
Apr |
0.2 |
2.0 |
0.2 |
1.8 |
|
AE ∆% Apr-Jul |
1.8 |
|
2.1 |
|
|
Mar |
0.2 |
1.5 |
0.2 |
1.7 |
|
Feb |
0.1 |
1.1 |
0.1 |
1.6 |
|
Jan |
0.2 |
1.6 |
0.1 |
1.6 |
|
Dec 2013 |
0.3 |
1.5 |
0.2 |
1.7 |
|
AE ∆% Dec-Mar |
2.4 |
|
1.8 |
|
|
Nov |
0.2 |
1.2 |
0.2 |
1.7 |
|
Oct |
0.1 |
1.0 |
0.1 |
1.7 |
|
AE ∆% Oct-Nov |
1.8 |
|
1.8 |
|
|
Sep |
0.0 |
1.2 |
0.2 |
1.7 |
|
Aug |
0.2 |
1.5 |
0.2 |
1.8 |
|
Jul |
0.2 |
2.0 |
0.2 |
1.7 |
|
Jun |
0.2 |
1.8 |
0.2 |
1.6 |
|
May |
0.0 |
1.4 |
0.1 |
1.7 |
|
AE ∆% May-Sep |
1.4 |
|
2.2 |
|
|
Apr |
-0.2 |
1.1 |
0.0 |
1.7 |
|
Mar |
-0.3 |
1.5 |
0.1 |
1.9 |
|
AE ∆% Mar-Apr |
-3.0 |
|
0.6 |
|
|
Feb |
0.5 |
2.0 |
0.1 |
2.0 |
|
AE ∆% Feb |
6.2 |
|
1.2 |
|
|
Jan |
0.2 |
1.6 |
0.2 |
1.9 |
|
Dec 2012 |
0.0 |
1.7 |
0.2 |
1.9 |
|
Nov |
-0.2 |
1.8 |
0.1 |
1.9 |
|
AE ∆% Nov-Jan |
0.0 |
|
2.0 |
|
|
Oct |
0.3 |
2.2 |
0.2 |
2.0 |
|
Sep |
0.5 |
2.0 |
0.2 |
2.0 |
|
Aug |
0.6 |
1.7 |
0.1 |
1.9 |
|
AE ∆% Aug-Oct |
5.7 |
|
2.0 |
|
|
Jul |
0.0 |
1.4 |
0.2 |
2.1 |
|
Jun |
-0.1 |
1.7 |
0.2 |
2.2 |
|
May |
-0.2 |
1.7 |
0.1 |
2.3 |
|
AE ∆% May-Jul |
-1.2 |
|
2.0 |
|
|
Apr |
0.2 |
2.3 |
0.2 |
2.3 |
|
Mar |
0.2 |
2.7 |
0.2 |
2.3 |
|
Feb |
0.2 |
2.9 |
0.1 |
2.2 |
|
AE ∆% Feb-Apr |
2.4 |
|
2.0 |
|
|
Jan |
0.3 |
2.9 |
0.2 |
2.3 |
|
Dec 2011 |
0.0 |
3.0 |
0.2 |
2.2 |
|
AE ∆% Dec-Jan |
1.8 |
|
2.4 |
|
|
Nov |
0.2 |
3.4 |
0.2 |
2.2 |
|
Oct |
0.1 |
3.5 |
0.2 |
2.1 |
|
AE ∆% Oct-Nov |
1.8 |
|
2.4 |
|
|
Sep |
0.2 |
3.9 |
0.1 |
2.0 |
|
Aug |
0.3 |
3.8 |
0.3 |
2.0 |
|
Jul |
0.3 |
3.6 |
0.2 |
1.8 |
|
AE ∆% Jul-Sep |
3.2 |
|
2.4 |
|
|
Jun |
0.0 |
3.6 |
0.2 |
1.6 |
|
May |
0.3 |
3.6 |
0.2 |
1.5 |
|
AE ∆% May-Jun |
1.8 |
|
2.4 |
|
|
Apr |
0.5 |
3.2 |
0.1 |
1.3 |
|
Mar |
0.5 |
2.7 |
0.1 |
1.2 |
|
Feb |
0.3 |
2.1 |
0.2 |
1.1 |
|
Jan |
0.3 |
1.6 |
0.2 |
1.0 |
|
AE ∆%
Jan-Apr |
4.9 |
|
1.8 |
|
|
Dec 2010 |
0.4 |
1.5 |
0.1 |
0.8 |
|
Nov |
0.3 |
1.1 |
0.1 |
0.8 |
|
Oct |
0.3 |
1.2 |
0.1 |
0.6 |
|
Sep |
0.2 |
1.1 |
0.1 |
0.8 |
|
Aug |
0.1 |
1.1 |
0.1 |
0.9 |
|
Jul |
0.2 |
1.2 |
0.1 |
0.9 |
|
Jun |
0.0 |
1.1 |
0.1 |
0.9 |
|
May |
-0.1 |
2.0 |
0.1 |
0.9 |
|
Apr |
0.0 |
2.2 |
0.0 |
0.9 |
|
Mar |
0.0 |
2.3 |
0.0 |
1.1 |
|
Feb |
-0.1 |
2.1 |
0.0 |
1.3 |
|
Jan |
0.1 |
2.6 |
-0.1 |
1.6 |
Note: Core:
excluding food and energy; AE: annual equivalent
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/
The behavior of the US consumer price index NSA from 2001 to
2020 is in Chart I-20. Inflation in the US is very dynamic without deflation
risks that would justify symmetric inflation targets. The hump in 2008
originated in the carry trade from interest rates dropping to zero into
commodity futures. There is no other explanation for the increase of the
Cushing OK Crude Oil Future Contract 1 from $55.64/barrel on Jan 9, 2007 to
$145.29/barrel on July 3, 2008 during deep global recession, collapsing under a
panic of flight into government obligations and the US dollar to $37.51/barrel
on Feb 13, 2009 and then rising by carry trades to $113.93/barrel on Apr 29,
2012, collapsing again and then recovering again to $105.23/barrel, all during
mediocre economic recovery with peaks and troughs influenced by bouts of risk
appetite and risk aversion (data from the US Energy Information Administration
EIA, https://www.eia.gov/). The
unwinding of the carry trade with the TARP announcement of toxic assets in
banks channeled cheap money into government obligations (see Cochrane and
Zingales 2009).
Chart I-20, US, Consumer Price Index, NSA, 2001-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-21 provides 12-month
percentage changes of the consumer price index from 2001 to 2020. There was no
deflation or threat of deflation from 2008 into 2009. Commodity prices
collapsed during the panic of toxic assets in banks. When stress tests in 2009
revealed US bank balance sheets in much stronger position, cheap money at zero
opportunity cost exited government obligations and flowed into carry trades of
risk financial assets. Increases in commodity prices drove again the all items
CPI with interruptions during risk aversion originating in multiple fears but
especially from the sovereign debt crisis of Europe.
Chart I-21, US, Consumer Price Index, 12-Month Percentage Change,
NSA, 2001-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
The trend of increase of the
consumer price index excluding food and energy in Chart I-22 does not reveal
any threat of deflation that would justify symmetric inflation targets. There
are mild oscillations in a neat upward trend.
Chart I-22, US, Consumer Price Index Excluding Food and
Energy, NSA, 2001-2020
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-23 provides 12-month
percentage change of the consumer price index excluding food and energy.
Past-year rates of inflation fell toward 1 percent from 2001 into 2003 because
of the recession and the decline of commodity prices beginning before the recession
with declines of real oil prices. Near zero interest rates with fed funds at 1
percent between Jun 2003 and Jun 2004 stimulated carry trades of all types,
including in buying homes with subprime mortgages in expectation that low
interest rates forever would increase home prices permanently, creating the
equity that would permit the conversion of subprime mortgages into creditworthy
mortgages (Gorton 2009EFM; see https://cmpassocregulationblog.blogspot.com/2011/07/causes-of-2007-creditdollar-crisis.html). Inflation rose and then collapsed during the unwinding
of carry trades and the housing debacle of the global recession. Carry trades
into 2011 and 2012 gave a new impulse to CPI inflation, all items and core.
Symmetric inflation targets destabilize the economy by encouraging hunts for
yields that inflate and deflate financial assets, obscuring risk/return
decisions on production, investment, consumption and hiring.
Chart I-23, US, Consumer Price Index Excluding Food and
Energy, 12-Month Percentage Change, NSA, 2001-2020
Source: US Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
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