US GDP contracted at the real seasonally adjusted annual rate (SAAR) of 2.0 percent in IQ2022 and contracted at the SAAR of 0.6 percent in IIQ2022, growing at 2.7 percent in IIIQ2022, growing at 2.6 percent in IVQ2022, growing at 2.2 percent in IQ2023, growing at 2.1 percent in IIQ2023 growing at 4.9 percent in IIIQ2023, growing at 3.4 percent in IVQ2023, growing at 1.4 percent in IQ2024 and growing at 3.0 percent in IIQ2024 (https://apps.bea.gov/iTable/index_nipa.cfm), The Consumer Price index of the United States in Chart CPI-H increased 2.9 percent in Jul 2024 Relative to a Year Earlier, The Tenth Highest Since 8.9 percent in Dec 1981 was Followed by the Highest of 9.1 percent in Jun 2022, the Second Highest of 8.6 percent in May 2022, 8.5 percent in both Jul 2022 and Mar 2022, 8.3 percent in both Apr and Aug 2022, 8.2 percent in Sep 2022, 7.7 percent in Oct 2022, 7.1 percent in Nov 2022, 6.5 percent in Dec 2022, 6.4 percent in Jan 2023, 6.0 percent in Feb 2023, 5.0 percent in Mar 2023, 4.9 percent in Apr 2023, 4.0 percent in May 2023, 3.0 percent in Jun 2023, 3.2 percent in Jul 2023, 3.7 percent in Aug 2023, 3.7 percent in Sep 2023, 3.2 percent in Oct 2023, 3.1 percent in Nov 2023, 3.4 percent in Dec 2023, 3.1 percent in Jan 2024, 3.2 percent in Feb 2024, 3.5 percent in Mar 2024, 3.4 percent in Apr 2024, 3.3 percent in May 2024, 3.0 in Jun 2024 and 2.9 percent in Jul 2024, at Annual Equivalent 0.4 Percent in May 2024-Jul 2024 and Increased at 0.2 Percent in Jul 2024 or 2.4 Percent in Annual Equivalent, Consumer Prices Excluding Food and Energy Increased 3.2 Percent in 12 Months Ending in Jul 2024 and at Annual Equivalent 2.0 Percent in May 2024-Jul 2024 and Increased 0.2 Percent in Jul 2024 or 2.4 Percent Annual Equivalent, Energy Services Prices Increased 1.1 Percent in 12 Months Ending in Jul 2024, Decreased at Annual Equivalent 14.9 Percent in May 2024-Jul 2024 and changed 0.0 Percent in Jul 2024 or at 0.0 Percent Annual Equivalent, Consumer Food Prices Increased 2.2 Percent in 12 Months Ending in Jul 2024 and Increased at Annual Equivalent 2.0 Percent in May-Jul 2024 and Increased 0.2 Percent in Jul 2024 or 2.4 Percent Annual Equivalent
Note: This Blog will post only one indicator of the US economy while we concentrate efforts in completing a book-length manuscript in the critically important subject of INFLATION.
Carlos M. Pelaez
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024.
I United States Inflation
IB Long-term US Inflation
IC Current US Inflation
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
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
Preamble. United States total public debt outstanding is $35.3 trillion and debt held by the public $28.1 trillion (https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny). The Net International Investment Position of the United States, or foreign debt, is $21.28 trillion at the end of IQ2024 (https://www.bea.gov/sites/default/files/2024-06/intinv124.pdf). The United States current account deficit is 3.4 percent of nominal GDP in IQ2024, “ up from 3.2 percent in the fourth quarter” (https://www.bea.gov/sites/default/files/2024-06/trans124.pdf). The Treasury deficit of the United States reached $2.8 trillion in fiscal year 2021 (https://fiscal.treasury.gov/reports-statements/mts/). Total assets of Federal Reserve Banks reached $7.1 trillion on Aug 28, 2024 and securities held outright reached $6.7 trillion (https://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1). US GDP nominal NSA reached $28.7 trillion in IIQ2024 (https://apps.bea.gov/iTable/index_nipa.cfm). US GDP contracted at the real seasonally adjusted annual rate (SAAR) of 2.0 percent in IQ2022 and contracted at the SAAR of 0.6 percent in IIQ2022, growing at 2.7 percent in IIIQ2022, growing at 2.6 percent in IVQ2022, growing at 2.2 percent in IQ2023, growing at 2.1 percent in IIQ2023 growing at 4.9 percent in IIIQ2023, growing at 3.4 percent in IVQ2023, growing at 1.4 percent in IQ2024 and growing at 3.0 percent in IIQ2024 (https://apps.bea.gov/iTable/index_nipa.cfm). Total Treasury interest-bearing, marketable debt held by private investors increased from $3635 billion in 2007 to $16,439 billion in Sep 2021 (Fiscal Year 2021) or increase by 352.2 percent (https://fiscal.treasury.gov/reports-statements/treasury-bulletin/). John Hilsenrath, writing on “Economists Seek Recession Cues in the Yield Curve,” published in the Wall Street Journal on Apr 2, 2022, analyzes the inversion of the Treasury yield curve with the two-year yield at 2.430 on Apr 1, 2022, above the ten-year yield at 2.374. Hilsenrath argues that inversion appears to signal recession in market analysis but not in alternative Fed approach. The Consumer Price index of the United States in Chart CPI-H increased 2.9 percent in Jul 2024 Relative to a Year Earlier, The Tenth Highest Since 8.9 percent in Dec 1981 was Followed by the Highest of 9.1 percent in Jun 2022, the Second Highest of 8.6 percent in May 2022, 8.5 percent in both Jul 2022 and Mar 2022, 8.3 percent in both Apr and Aug 2022, 8.2 percent in Sep 2022, 7.7 percent in Oct 2022, 7.1 percent in Nov 2022, 6.5 percent in Dec 2022, 6.4 percent in Jan 2023, 6.0 percent in Feb 2023, 5.0 percent in Mar 2023, 4.9 percent in Apr 2023, 4.0 percent in May 2023, 3.0 percent in Jun 2023, 3.2 percent in Jul 2023, 3.7 percent in Aug 2023, 3.7 percent in Sep 2023, 3.2 percent in Oct 2023, 3.1 percent in Nov 2023, 3.4 percent in Dec 2023, 3.1 percent in Jan 2024, 3.2 percent in Feb 2024, 3.5 percent in Mar 2024, 3.4 percent in Apr 2024, 3.3 percent in May 2024, 3.0 in Jun 2024 and 2.9 percent in Jul 2024.
Chart CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-2024
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Table CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-1983, 2019-2024
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| 1981 | 11.8 | 11.4 | 10.5 | 10.0 | 9.8 | 9.6 | 10.8 | 10.8 | 11.0 | 10.1 | 9.6 | 8.9 |
| 1982 | 8.4 | 7.6 | 6.8 | 6.5 | 6.7 | 7.1 | 6.4 | 5.9 | 5.0 | 5.1 | 4.6 | 3.8 |
| 1983 | 3.7 | 3.5 | 3.6 | 3.9 | 3.5 | 2.6 | 2.5 | 2.6 | 2.9 | 2.9 | 3.3 | 3.8 |
| 2019 | 1.6 | 1.5 | 1.9 | 2.0 | 1.8 | 1.6 | 1.8 | 1.7 | 1.7 | 1.8 | 2.1 | 2.3 |
| 2020 | 2.5 | 2.3 | 1.5 | 0.3 | 0.1 | 0.6 | 1.0 | 1.3 | 1.4 | 1.2 | 1.2 | 1.4 |
| 2021 | 1.4 | 1.7 | 2.6 | 4.2 | 5.0 | 5.4 | 5.4 | 5.3 | 5.4 | 6.2 | 6.8 | 7.0 |
| 2022 | 7.5 | 7.9 | 8.5 | 8.3 | 8.6 | 9.1 | 8.5 | 8.3 | 8.2 | 7.7 | 7.1 | 6.5 |
| 2023 | 6.4 | 6.0 | 5.0 | 4.9 | 4.0 | 3.0 | 3.2 | 3.7 | 3.7 | 3.2 | 3.1 | 3.4 |
| 2024 | 3.1 | 3.2 | 3.5 | 3.4 | 3.3 | 3.0 | 2.9 |
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart VII-3 of the Energy Information Administration provides the US retail price of regular gasoline. The price moved to $3.313 per gallon on Aug 26, 2024 from $3.813 a year earlier or minus 13.1 percent.
https://www.eia.gov/petroleum/weekly/
Chart VII-3A provides the US retail price of regular gasoline, dollars per gallon, from $1.191 on Aug 20,1990 to $3.313 on Aug 26, 2024 or 178.2 percent. The price of retail regular gasoline increased from $2.249/gallon on Jan 4,2021 to $3.313 gallon on Aug 26, 2024, or 47.3 percent. The price of retail regular gasoline decreased from $3.530/gallon on Feb 21, 2022, two days before the invasion of Ukraine, to $3.313/gallon on Aug 26, 2024 or minus 6.1 percent and had increased 57.0 percent from $2.249/gallon on Jan 4,2021 to $3.530/gallon on Feb 21, 2022.
Chart VII-3A, US Retail Price of Regular Gasoline, Dollars Per Gallon
Source: US Energy Information Administration
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W
Chart VII-4 of the Energy Information Administration provides the price of the Natural Gas Futures Contract increasing from $2.581 per million Btu on Jan 4, 2021 to $5.326 per million Btu on Dec 20, 2022 or 106.4 percent and closing at $1.785 on Apr 5, 2024 or change of minus 66.5 percent.
Chart VII-4, US, Natural Gas Futures Contract 1
Source: US Energy Information Administration
https://www.eia.gov/dnav/ng/hist/rngc1d.htm
Chart VII-5 of the US Energy Administration provides US field production of oil moving from a high of 12.980 thousand barrels per day in Dec 2019 to 11.678 thousand barrels per day in Dec 2021 and the final point of 13.178 thousand barrels per day in May 2024.
Chart VII-5, US, US, Field Production of Crude Oil, Thousand Barrels
Source: US Energy Information Administration
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m
Chart VII-6 of the US Energy Information Administration provides net imports of crude oil and petroleum products. Net imports changed from 1967 thousand barrels per day in the first week of Dec 2020 to minus -1718 thousand barrels in the third week of Aug 23, 2024.
Chart VII-6, US, Net Imports of Crude Oil and Petroleum Products, Thousand Barrels Per Day
Source: US Energy Information Administration
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTNTUS2&f=W
Chart VI-7 of the EIA provides US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2022. There was sharp increase in production in the final segment that reached consumption by 2020. There is reversal in 2021 with consumption exceeding production.
Chart VI-7, US Petroleum Consumption, Production, Imports, Exports and Net Imports 1950-2022, Million Barrels Per Day
https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php
Chart VI-8 provides the US average retail price of electricity at 12.78 cents per kilowatthour in Dec 2020 increasing to 16.41 cents per kilowatthour in Jun 2024 or 28.4 per cent.
Chart VI-8, US Average Retail Price of Electricity, Monthly, Cents per Kilowatthour,
Chart VII-9 provides the fed funds rate and Three Months, Two-Year and Ten-Year Treasury Constant Maturity Yields. Unconventional monetary policy of near zero interest rates is typically followed by financial and economic stress with sharp increases in interest rates.
Chart VII-9, US Fed Funds Rate and Three-Month, Two-Year and Ten-Year Treasury Constant Maturity Yields, Jan 2, 1994 to 2022-2023
Source: Federal Reserve Board of the Federal Reserve System
https://www.federalreserve.gov/releases/h15/
Note: program does not download the entire right-side of the chart.
Chart VII-9A, US Fed Funds Rate and Three-Month, Two-Year and Ten-Year Treasury Constant Maturity Yields, Jan 2, 2022 to May 30, 2023
Source: Federal Reserve Board of the Federal Reserve System
https://www.federalreserve.gov/releases/h15/
Note: Chart is shortened of current dates in download.
Chart VI-14 provides the overnight fed funds rate, the yield of the 10-year Treasury constant maturity bond, the yield of the 30-year constant maturity bond and the conventional mortgage rate from Jan 1991 to Dec 1996. In Jan 1991, the fed funds rate was 6.91 percent, the 10-year Treasury yield 8.09 percent, the 30-year Treasury yield 8.27 percent and the conventional mortgage rate 9.64 percent. Before monetary policy tightening in Oct 1993, the rates and yields were 2.99 percent for the fed funds, 5.33 percent for the 10-year Treasury, 5.94 for the 30-year Treasury and 6.83 percent for the conventional mortgage rate. After tightening in Nov 1994, the rates and yields were 5.29 percent for the fed funds rate, 7.96 percent for the 10-year Treasury, 8.08 percent for the 30-year Treasury and 9.17 percent for the conventional mortgage rate.
Chart VI-14, US, Overnight Fed Funds Rate, 10-Year Treasury Constant Maturity, 30-Year Treasury Constant Maturity and Conventional Mortgage Rate, Monthly, Jan 1991 to Dec 1996
Source: Board of Governors of the Federal Reserve System
http://www.federalreserve.gov/releases/h15/update/
Chart VI-15 of the Bureau of Labor Statistics provides the all items consumer price index from Jan 1991 to Dec 1996. There does not appear acceleration of consumer prices requiring aggressive tightening.
Chart VI-15, US, Consumer Price Index All Items, Jan 1991 to Dec 1996
Source: Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
Chart IV-16 of the Bureau of Labor Statistics provides 12-month percentage changes of the all items consumer price index from Jan 1991 to Dec 1996. Inflation collapsed during the recession from Jul 1990 (III) and Mar 1991 (I) and the end of the Kuwait War on Feb 25, 1991 that stabilized world oil markets. CPI inflation remained almost the same and there is no valid counterfactual that inflation would have been higher without monetary policy tightening because of the long lag in effect of monetary policy on inflation (see Culbertson 1960, 1961, Friedman 1961, Batini and Nelson 2002, Romer and Romer 2004). Policy tightening had adverse collateral effects in the form of emerging market crises in Mexico and Argentina and fixed income markets worldwide.
Chart VI-16, US, Consumer Price Index All Items, Twelve-Month Percentage Change, Jan 1991 to Dec 1996
Source: Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
Chart USFX provides the exchange rate of US Dollars per EURO from 2007 to 2023. Barry Eichengreen and Jeffrey Sachs, Exchange Rates and Economic Recovery in the 1930s, The Journal of Economic History, Vol. 45, No. 4 (Dec 1985), argue that foreign exchange “depreciation was clearly beneficial for initiating countries” during the Great Depression of the 1930s and that it was no equivalent to “beggar my neighbor” policies such as tariffs.
Chart USFX, Exchange Rate USD/EURO 2007-2023
Source: https://www.federalreserve.gov/releases/h10/current/
Chart USFX, Exchange Rate USD/EURO 2000-2023
Source: https://www.federalreserve.gov/releases/h10/current/
Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/
Chart USFX, Exchange Rate USD/EURO 2018-2023
Source: https://www.federalreserve.gov/releases/h10/current/
Federal Reserve Bank of St. Louis https://fred.stlouisfed.org/
Table USFX provides the rate of USD/EURO in selected months. The dollar appreciated sharply from USD 1.2254 on Jan 4, 2021 to 1.0787 on Aug 25, 2023 and 1.1176 on Aug 23, 2024.
Table USFX, USD/EURO Selected Months
| Date | USD/EUR |
| 1/4/2021 | 1.2254 |
| 1/5/2021 | 1.2295 |
| 1/6/2021 | 1.229 |
| 1/7/2021 | 1.2265 |
| 1/8/2021 | 1.2252 |
| 1/11/2021 | 1.2169 |
| 1/12/2021 | 1.2168 |
| 1/13/2021 | 1.2159 |
| 1/14/2021 | 1.2156 |
| 1/15/2021 | 1.2099 |
| 1/31/2023 | 1.0858 |
| 2/1/2023 | 1.0917 |
| 2/2/2023 | 1.0918 |
| 2/3/2023 | 1.0825 |
| 2/6/2023 | 1.0722 |
| 2/7/2023 | 1.0705 |
| 2/8/2023 | 1.0734 |
| 2/9/2023 | 1.0761 |
| 2/10/2023 | 1.0670 |
| 2/13/2023 | 1.0718 |
| 2/14/2023 | 1.0722 |
| 2/15/2023 | 1.0683 |
| 2/16/2023 | 1.0684 |
| 2/17/2023 | 1.0678 |
| 2/24/2023 | 1.0545 |
| 3/03/2023 | 1.0616 |
| 3/10/2023 | 1.0659 |
| 3/17/2023 | 1.0647 |
| 3/24/2023 | 1.0762 |
| 3/31/2023 | 1.0872 |
| 4/7/2023 | 1.0913 |
| 4/14/2023 | 1.0980 |
| 4/21/2023 | 1.0973 |
| 4/28/2023 | 1.1040 |
| 5/5/2023 | 1.1026 |
| 5/26/2023 | 1.0713 |
| 6/2/2023 | 1.0724 |
| 6/9/2023 | 1.0749 |
| 6/16/2023 | 1.0925 |
| 6/23/2023 | 1.0887 |
| 6/30/2023 | 1.0920 |
| 7/7/2023 | 1.0964 |
| 7/14/2023 | 1.1237 |
| 7/21/2023 | 1.1120 |
| 7/28/2023 | 1.1039 |
| 8/4/2023 | 1.1036 |
| 8/11/2023 | 1.0957 |
| 8/18/2023 | 1.0875 |
| 8/25/2023 | 1.0787 |
| 9/1/223 | 1.0787 |
| 9/8/2023 | 1.0709 |
| 9/15/2023 | 1.0673 |
| 9/22/2023 | 1.0660 |
| 9/29/2023 | 1.0584 |
| 10/6/2023 | 1.0596 |
| 10/13/2023 | 1.0502 |
| 10/20/2023 | 1.0592 |
| 10/27/2023 | 1.0592 |
| 11/3/2023 | 1.0733 |
| 11/10/2023 | 1.0710 |
| 11/17/2023 | 1.0879 |
| 11/24/2023 | 1.0934 |
| 12/1/2023 | 1.0878 |
| 12/8/2023 | 1.0746 |
| 12/15/2023 | 1.0906 |
| 6/21/2024 | 1.0694 |
| 8/23/2024 | 1.1176 |
Source: https://www.federalreserve.gov/releases/h10/current/
Table B provides the exchange rate of Brazil and the trade balance from 1927 to 1939. “Currency depreciation in the 1930s…benefitted the initiating countries…There can be no presumption that depreciation was beggar-thy-neighbor…competitive devaluation taken by a group of countries had they been even more widely adopted and coordinated internationally would have hasted recovery from the Great Depression,” Barry Eichengreen and Jeffrey Sachs, “Exchange Rates and Economic Recovery in the1930s,” Journal of Economic History, Vol. 45, No. 4 (Dec., 1985), pp.925-946.
Table B, Brazil, Exchange Rate and Trade Balance, 1927-1939
| Year | Exchange Rate Mil-Réis per £ | Trade Balance 1000 Contos | ||
| 1927 | 40.6 | 370.9 | ||
| 1928 | 40.3 | 275.3 | ||
| 1929 | 40.6 | 332.7 | ||
| 1930 | 49.4 | 563.6 | ||
| 1931 | 62.4 | 1517.2 | ||
| 1932 | 48.1 | 1018.1 | ||
| 1933 | 52.6 | 655 | ||
| 1934 | 59.7 | 956.2 | ||
| 1935 | 57.9 | 248.1 | ||
| 1936 | 58.4 | 626.8 | ||
| 1937 | 56.9 | -222.5 | ||
| 1938 | 57.6 | -98.7 | ||
| 1939 | 71.1 | 631.9 |
Source: Carlos Manuel Peláez, Análise Econômica do Programa Brasileiro de Sustentação do Café 1906-1945: Teoria, Política e Medição, Revista Brasileira de Economia, Vol. 25, N 4, Out/Dez 1971, 5-213.
Christina D. Romer argues that growth of the money stock was critical in the recovery of the United States from the Great Depression (Christina D. Romer, What ended the Great Depression? The Journal of Economic History, Volume 52, Number 4, Dec 1992, pp 757-784).
Table C, Brazil, Yearly Percentage Changes of the Money Stock, M1 and M2, Exchange Rate, Terms of Trade, Industrial Production, Real Gross National Product and Real Gross Income Per Capita, 1930-1939
| Period | M1 | M2 | Exchange Rate | Terms of Trade | Industrial Production | Real GNP | Real Gross Income Per Capita |
| 1929/30 | -9 | -4 | 22 | -34 | -5 | -1 | -10 |
| 1930/31 | 4 | 1 | 26 | -5 | 8 | -3 | -6 |
| 1931/32 | 15 | 7 | -23 | 8 | 0 | 6 | 2 |
| 1932/33 | 10 | 4 | 10 | -15 | 16 | 10 | 7 |
| 1933/34 | 5 | 6 | 13 | 5 | 13 | 7 | 5 |
| 1934/35 | 7 | 8 | -3 | -28 | 14 | 1 | -4 |
| 1935/36 | 10 | 11 | 1 | 2 | 14 | 12 | 9 |
| 1936/37 | 10 | 9 | -3 | 2 | 7 | 3 | 0 |
| 1937/38 | 19 | 13 | 1 | -11 | 6 | 4 | -1 |
| 1938/39 | 0 | 8 | 23 | -12 | 14 | 4 | 2 |
Source: Carlos Manuel Peláez and Wilson Suzigan, História Monetária do Brasil. Segunda Edição Revisada e Ampliada. Coleção Temas Brasileiros, Universidade de Brasília, 1981.
“In the period of the free coffee market 1857-1906, international coffee prices fluctuated in cycles of increasing amplitude. British export prices decreased at a low average rate, and physical exports of coffee by Brazil increased at the average rate of 2.9 percent per year. The income terms of trade of the coffee economy of Brazil improved at the average compound rate of 4.0 percent per year. But the actual rate must have been much higher because of drastic improvements in the quality of manufactures while the quality of coffee remained relatively constant,” Carlos Manuel Peláez, “The Theory and Reality of Imperialism in the Coffee Economy of Nineteenth-Century Brazil,” The Economic History Review, Second Series, Volume XXIX, No. 2, May 1976. 276-290. See Carlos Manuel Peláez, “A Comparison of Long-Term Monetary Behavior and Institutions in Brazil, Europe and the United States,” The Journal of European Economic History, Volume 5, Number 2, Fall 1976, 439-450, Presented at the Sixth International Congress of Economic History, Section on Monetary Inflation in Historical Perspective, Copenhagen, 22 Aug 1974.
In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):
“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”
Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and re the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+re). Thus, g = [(r/re) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dre>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:
W = Y/r (1)
Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.
Inflation and unemployment in the period 1966 to 1985 is analyzed by Cochrane (2011Jan, 23) by means of a Phillips circuit joining points of inflation and unemployment. Chart VI-1B for Brazil in Pelaez (1986, 94-5) was reprinted in The Economist in the issue of Jan 17-23, 1987 as updated by the author. Cochrane (2011Jan, 23) argues that the Phillips circuit shows the weakness in Phillips curve correlation. The explanation is by a shift in aggregate supply, rise in inflation expectations or loss of anchoring. The case of Brazil in Chart VI-1B cannot be explained without taking into account the increase in the fed funds rate that reached 22.36 percent on Jul 22, 1981 (http://www.federalreserve.gov/releases/h15/data.htm) in the Volcker Fed that precipitated the stress on a foreign debt bloated by financing balance of payments deficits with bank loans in the 1970s. The loans were used in projects, many of state-owned enterprises with low present value in long gestation. The combination of the insolvency of the country because of debt higher than its ability of repayment and the huge government deficit with declining revenue as the economy contracted caused adverse expectations on inflation and the economy. This interpretation is consistent with the case of the 24 emerging market economies analyzed by Reinhart and Rogoff (2010GTD, 4), concluding that “higher debt levels are associated with significantly higher levels of inflation in emerging markets. Median inflation more than doubles (from less than seven percent to 16 percent) as debt rises frm the low (0 to 30 percent) range to above 90 percent. Fiscal dominance is a plausible interpretation of this pattern.”
The reading of the Phillips circuits of the 1970s by Cochrane (2011Jan, 25) is doubtful about the output gap and inflation expectations:
“So, inflation is caused by ‘tightness’ and deflation by ‘slack’ in the economy. This is not just a cause and forecasting variable, it is the cause, because given ‘slack’ we apparently do not have to worry about inflation from other sources, notwithstanding the weak correlation of [Phillips circuits]. These statements [by the Fed] do mention ‘stable inflation expectations. How does the Fed know expectations are ‘stable’ and would not come unglued once people look at deficit numbers? As I read Fed statements, almost all confidence in ‘stable’ or ‘anchored’ expectations comes from the fact that we have experienced a long period of low inflation (adaptive expectations). All these analyses ignore the stagflation experience in the 1970s, in which inflation was high even with ‘slack’ markets and little ‘demand, and ‘expectations’ moved quickly. They ignore the experience of hyperinflations and currency collapses, which happen in economies well below potential.”
Yellen (2014Aug22) states that “Historically, slack has accounted for only a small portion of the fluctuations in inflation. Indeed, unusual aspects of the current recovery may have shifted the lead-lag relationship between a tightening labor market and rising inflation pressures in either direction.”
Chart VI-1B provides the tortuous Phillips Circuit of Brazil from 1963 to 1987. There were no reliable consumer price index and unemployment data in Brazil for that period. Chart VI-1B used the more reliable indicator of inflation, the wholesale price index, and idle capacity of manufacturing as a proxy of unemployment in large urban centers.
Chart VI1-B, Brazil, Phillips Circuit, 1963-1987
Source: ©Carlos Manuel Pelaez, O Cruzado e o Austral: Análise das Reformas Monetárias do Brasil e da Argentina. São Paulo: Editora Atlas, 1986, pages 94-5. Reprinted in: Brazil. Tomorrow’s Italy, The Economist, 17-23 January 1987, page 25.
I D Current US Inflation. Unconventional monetary policy of zero interest rates and large-scale purchases of long-term securities for the balance sheet of the central bank is proposed to prevent deflation. The data of CPI inflation of all goods and CPI inflation excluding food and energy for the past six decades does not show even one negative change, as shown in Table CPIEX. There is acceleration in 2021, 2022 and 2023.
Table CPIEX, Annual Percentage Changes of the CPI All Items Excluding Food and Energy
| Year | Annual ∆% |
| 1958 | 2.4 |
| 1959 | 2.0 |
| 1960 | 1.3 |
| 1961 | 1.3 |
| 1962 | 1.3 |
| 1963 | 1.3 |
| 1964 | 1.6 |
| 1965 | 1.2 |
| 1966 | 2.4 |
| 1967 | 3.6 |
| 1968 | 4.6 |
| 1969 | 5.8 |
| 1970 | 6.3 |
| 1971 | 4.7 |
| 1972 | 3.0 |
| 1973 | 3.6 |
| 1974 | 8.3 |
| 1975 | 9.1 |
| 1976 | 6.5 |
| 1977 | 6.3 |
| 1978 | 7.4 |
| 1979 | 9.8 |
| 1980 | 12.4 |
| 1981 | 10.4 |
| 1982 | 7.4 |
| 1983 | 4.0 |
| 1984 | 5.0 |
| 1985 | 4.3 |
| 1986 | 4.0 |
| 1987 | 4.1 |
| 1988 | 4.4 |
| 1989 | 4.5 |
| 1990 | 5.0 |
| 1991 | 4.9 |
| 1992 | 3.7 |
| 1993 | 3.3 |
| 1994 | 2.8 |
| 1995 | 3.0 |
| 1996 | 2.7 |
| 1997 | 2.4 |
| 1998 | 2.3 |
| 1999 | 2.1 |
| 2000 | 2.4 |
| 2001 | 2.6 |
| 2002 | 2.4 |
| 2003 | 1.4 |
| 2004 | 1.8 |
| 2005 | 2.2 |
| 2006 | 2.5 |
| 2007 | 2.3 |
| 2008 | 2.3 |
| 2009 | 1.7 |
| 2010 | 1.0 |
| 2011 | 1.7 |
| 2012 | 2.1 |
| 2013 | 1.8 |
| 2014 | 1.7 |
| 2015 | 1.8 |
| 2016 | 2.2 |
| 2017 | 1.8 |
| 2018 | 2.1 |
| 2019 | 2.2 |
| 2020 | 1.7 |
| 2021 | 3.6 |
| 2022 | 6.2 |
| 2023 | 4.8 |
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-12 provides the consumer price index NSA from 1913 to 2024. 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. There is increasing inflation in 2021-2024.
Chart I-12, US, Consumer Price Index, NSA, 1913-2024
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 2024. 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. There are current higher rates of inflation.
Chart I-13, US, Consumer Price Index, All Items, 12- Month Percentage Change 1914-2024
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 2023. 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 an 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 1.8 percent in 2019. Consumer prices increased 1.2 percent in 2020. Consumer prices increased 4.7 percent in 2021 during fiscal, monetary, and external imbalances. Consumer prices increased 8.0 percent in 2022 in a combination of energy policies with fiscal and monetary imbalance. Consumer prices increased 4.1 percent in 2023. 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 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 recently 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 ∆% 1914-2022
| 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 |
| 2020 | 1.2 |
| 2021 | 4.7 |
| 2022 | 8.0 |
| 2023 | 4.1 |
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 2024. 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, 1957-2024
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 2024. There are three waves of inflation in the 1970s during the Great Inflation. There is no episode of deflation. There is renewed inflation currently.
Chart I-15, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 1958-2024
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, 1967-2024
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. There is current higher inflation.
Chart I-17, US, Consumer Price Index, Housing, 12- Month Percentage Change, NSA, 1968-2024
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 Jul 2024 and annual equivalent percentage changes for the months from May 2024 to Jul 2024 of the CPI, the core CPI and major segments. The final column provides inflation from Jun 2024 to Jul 2024. CPI prices increased 2.9 percent in the 12 months ending in Jul 2024. The annual equivalent rate from May 2024 to Jul 2024 was 0.4 percent in the episode of shifting energy sources; and the monthly inflation rate of 0.2 percent annualizes at 2.4 percent. Prior 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 magnified by policies shifting energy sources. 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 3.2 percent in the 12 months ending in Jul 2024, 2.0 percent in annual equivalent from May 2024 to Jul 2024 and 0.2 percent in Jul 2024, which annualizes at 2.4 percent. There is no deflation in the US economy that could justify further unconventional monetary policy 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 engaged in increases in the Fed balance sheet. Financial repression of very low interest rates constituted protracted distortion of resource allocation by clouding risk/return decisions, preventing the economy from expanding along its optimal growth path. 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. On Jul 31, 2024, the FOMC maintained interest rates unchanged with the following statement (https://www.federalreserve.gov/newsevents/pressreleases/monetary20240731a.htm): “Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee's 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.“(emphasis added).
In his classic restatement of the Keynesian demand function in terms of “liquidity preference as behavior toward risk,” James Tobin (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1981/tobin-bio.html) identifies the risks of low interest rates in terms of portfolio allocation (Tobin 1958, 86):
“The assumption that investors expect on balance no change in the rate of interest has been adopted for the theoretical reasons explained in section 2.6 rather than for reasons of realism. Clearly investors do form expectations of changes in interest rates and differ from each other in their expectations. For the purposes of dynamic theory and of analysis of specific market situations, the theories of sections 2 and 3 are complementary rather than competitive. The formal apparatus of section 3 will serve just as well for a non-zero expected capital gain or loss as for a zero expected value of g. Stickiness of interest rate expectations would mean that the expected value of g is a function of the rate of interest r, going down when r goes down and rising when r goes up. In addition to the rotation of the opportunity locus due to a change in r itself, there would be a further rotation in the same direction due to the accompanying change in the expected capital gain or loss. At low interest rates expectation of capital loss may push the opportunity locus into the negative quadrant, so that the optimal position is clearly no consols, all cash. At the other extreme, expectation of capital gain at high interest rates would increase sharply the slope of the opportunity locus and the frequency of no cash, all consols positions, like that of Figure 3.3. The stickier the investor's expectations, the more sensitive his demand for cash will be to changes in the rate of interest (emphasis added).”
Tobin (1969) provides more elegant, complete analysis of portfolio allocation in a general equilibrium model. The major point is equally clear in a portfolio consisting of only cash balances and a perpetuity or consol. Let g be the capital gain, r the rate of interest on the consol and re the expected rate of interest. The rates are expressed as proportions. The price of the consol is the inverse of the interest rate, (1+re). Thus, g = [(r/re) – 1]. The critical analysis of Tobin is that at extremely low interest rates there is only expectation of interest rate increases, that is, dre>0, such that there is expectation of capital losses on the consol, dg<0. Investors move into positions combining only cash and no consols. Valuations of risk financial assets would collapse in reversal of long positions in carry trades with short exposures in a flight to cash. There is no exit from a central bank created liquidity trap without risks of financial crash and another global recession. The net worth of the economy depends on interest rates. In theory, “income is generally defined as the amount a consumer unit could consume (or believe that it could) while maintaining its wealth intact” (Friedman 1957, 10). Income, Y, is a flow that is obtained by applying a rate of return, r, to a stock of wealth, W, or Y = rW (Friedman 1957). According to a subsequent statement: “The basic idea is simply that individuals live for many years and that therefore the appropriate constraint for consumption is the long-run expected yield from wealth r*W. This yield was named permanent income: Y* = r*W” (Darby 1974, 229), where * denotes permanent. The simplified relation of income and wealth can be restated as:
W = Y/r (1)
Equation (1) shows that as r goes to zero, r→0, W grows without bound, W→∞. Unconventional monetary policy lowers interest rates to increase the present value of cash flows derived from projects of firms, creating the impression of long-term increase in net worth. An attempt to reverse unconventional monetary policy necessarily causes increases in interest rates, creating the opposite perception of declining net worth. As r→∞, W = Y/r →0. There is no exit from unconventional monetary policy without increasing interest rates with resulting pain of financial crisis and adverse effects on production, investment and employment.
Table I-3, US, Consumer Price Index Percentage Changes 12 months NSA and Annual Equivalent ∆%
| % RI Jun 2024 | ∆% 12 Months Jul 2024/Jul | ∆% Annual Equivalent May 2024 to Jul 2024 SA | ∆% Jul 2024/Jun 2024 SA | |
| CPI All Items | 100.000 | 2.9 | 0.4 | 0.2 |
| CPI ex Food and Energy | 79.676 | 3.2 | 2.0 | 0.2 |
| Food | 13.410 | 2.2 | 2.0 | 0.2 |
| Energy | 6.915 | 1.1 | -14.9 | 0.0 |
| Gasoline | 3.504 | -2.2 | -26.0 | 0.0 |
| Energy Services | 3.156 | 4.2 | -1.6 | -0.1 |
| Electricity | 2.495 | 4.9 | -2.4 | 0.1 |
| Utility Gas | 0.661 | 1.5 | 3.5 | -0.7 |
| Shelter | 36.315 | 5.1 | 4.1 | 0.4 |
| Medical Care Services | 6.505 | 3.3 | 0.8 | -0.3 |
| Transportation Services | 6.487 | 8.8 | -2.4 | 0.4 |
% RI: Percent Relative Importance
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/
Table I-4 provides relative important components of the consumer price index. The relative important weights for May 2024 are in Table I-3.
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 2024. 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 2015-2024. 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, 2001-2024
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 then increasing into 2014. There is decrease into 2015 followed by stability and marginal increase in 2016-2019 followed by initial decline in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions), in the lockdown of economic activity in the COVID-19 event and then trough in Apr 2020 (https://www.nber.org/news/business-cycle-dating-committee-announcement-july-19-2021) with sharp recovery.
Chart I-19, US, Consumer Price Index, Housing, 12-Month Percentage Change, NSA, 2001-2024
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 2024 (https://cmpassocregulationblog.blogspot.com/2022/03/accelerating-inflation-throughout-world.html and earlier https://cmpassocregulationblog.blogspot.com/2022/02/us-gdp-growing-at-saar-of-70-percent-in.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 and 2.0 percent for the core CPI. 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 4.3 percent for the central index in Mar-Apr 2016 and at 3.0 percent for the core index. In the twenty-sixth wave, annual equivalent inflation was 3.0 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 minus 1.2 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 3.0 percent in Sep-Oct 2016 while the core CPI increased at 1.8 percent. In the thirtieth wave, annual equivalent CPI prices increased at 2.4 percent in Nov-Dec 2016 while the core CPI increased at 1.8 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 2.4 percent in Feb 2017 while the core increased at 2.4 percent. In the thirty-third wave, CPI prices changed at annual equivalent 0.0 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 changed at annual equivalent 0.0 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 1.8 percent. In the forty-second wave, CPI prices increased at 1.8 percent in Jun-Sep 2018 while core prices increased at 1.5 percent. In the forty-third wave, CPI prices increased at annual equivalent 2.4 percent in Oct 2018 while core prices increased at 2.4 percent. In the forty-fourth wave, CPI prices decreased at 0.4 percent annual equivalent in Nov 2018-Jan 2019 while core prices increased at 2.8 percent. In the forty-fifth wave, CPI prices increased at 4.5 percent annual equivalent in Feb-Apr 2019 while core prices increased at 2.0 percent. In the forty-sixth wave, CPI prices changed at 0.0 percent annual equivalent in May-Jun 2019 while core prices increased at 1.8 percent. In the forty-seventh wave, CPI prices increased at 2.4 percent annual equivalent in Jul 2019 while core prices increased at 2.4 percent. In the forty-eighth wave, CPI prices increased at 1.8 percent annual equivalent in Aug-Sep 2019 while core prices increased at 2.4 percent. In the forty-ninth wave, CPI prices increased at 3.7 percent annual equivalent in Oct-Dec 2019 while core prices increased at 2.4 percent. In the fiftieth wave, CPI prices increased at 1.2 percent annual equivalent in Jan-Feb 2020 and core prices at 3.7 percent. In the fifty-first wave, CPI prices decreased at annual equivalent 5.1 percent in Mar-May 2020 while core prices decreased at 2.8 percent. In the fifty-second wave, CPI prices increased at 6.2 percent annual equivalent in Jun-Jul 2020 and core prices increased at 4.3 percent. In the fifty-third wave, CPI prices increased at annual equivalent 3.7 percent and core prices increased at 3.7 percent in Aug-Sep 2020. In the fifty-fourth wave, CPI prices increased at 1.2 percent annual equivalent and core prices at 1.2 percent in Oct 2020. In the fifty-fifth wave, CPI prices increased at 3.2 percent annual equivalent in Nov 2020-Jan 2021 and core prices at 1.6 percent. In the fifty-sixth wave, CPI prices increased at annual equivalent 5.5 percent in Feb-Mar 2021 and core prices at 1.8 percent. In the fifty-seventh wave, CPI prices increased at annual equivalent 8.7 percent in Apr-Jun 2021 and core prices at 9.6 percent. In the fifty-eighth wave, CPI prices increased at annual equivalent 4.9 percent in Jul-Sep 2021 and core prices at 3.2 percent. In the fifty-ninth wave, CPI prices increased at annual equivalent 11.4 percent in Oct-Nov 2021 while core prices increased at 8.1 percent. In the sixtieth wave, CPI prices increased at annual equivalent 8.7 percent and core prices increased at 7.0 percent in Dec 2021-Feb 2022. In the sixty-first wave, CPI prices increased at annual equivalent 14.0 percent and core prices at 3.7 percent in Mar 2022. In the sixty-second wave, CPI prices increased at annual equivalent 4.9 percent in Apr 2022 and core prices at 6.2 percent. In the sixty-third wave, CPI prices increased at annual equivalent 13.4 percent in May-Jun 2022 and core prices at 7.4 percent. In the sixty-fourth wave, CPI prices changed at annual equivalent 0.0 percent in Jul 2022 and core prices increased at 4.9 percent annual equivalent. In the sixty-fifth wave, CPI prices increased at annual equivalent 1.2 percent in Aug 2022 and core prices at 6.2 percent annual equivalent. In the sixty-sixth wave, CPI prices increased at annual equivalent 5.5 percent in Sep-Oct 2022 and core prices at 6.2 percent. In the sixty-seventh wave, CPI prices increased at annual equivalent 3.7 percent in Nov 2022 and core prices at 3.7 percent. In the sixty-eighth wave, CPI prices increased at annual equivalent 1.2 percent while core prices increased at 4.9 percent in Dec 2022. In the sixty-ninth wave, CPI prices increased at 5.5 percent annual equivalent in Jan-Feb 2023 and core prices at 5.5 percent. In the seventieth wave, CPI prices increased at annual equivalent 1.2 percent and core prices at 3.7 percent in Mar 2023. In the seventy-first wave, CPI prices increased at annual equivalent 4.9 percent in Apr 2023 while core prices increased at 6.2 percent. In the seventy-second wave, CPI prices increased at 1.2 percent annual equivalent in May 2023 while core prices increased at 4.9 percent. In the seventy-third wave, CPI prices increased at 2.4 percent annual equivalent in Jun-Jul 2023 while core prices increased at 2.4 percent. In the seventy-fourth wave, CPI prices increased at annual equivalent 6.2 percent in Aug 2023 while core prices increased at 2.4 percent. In the seventy-fifth wave, CPI prices increased at annual equivalent 4.9 percent in Sep 2023 while core prices increased at 3.7 percent. In the seventy-sixth wave, CPI prices increased at 1.8 percent annual equivalent in Oct-Nov 2023 while core prices increased at 3.0 percent. In the seventy-eighth wave, CPI prices increased at 2.4 percent annual equivalent in Dec 2023 while core prices increased at 3.7 percent. In the seventy-ninth wave, CPI prices increased at 4.5 percent annual equivalent in Jan-Mar 2024 while core prices increased at 4.9 percent. In the eightieth wave, CPI prices increased at 3.7 percent annual equivalent in Apr 2024 while core prices increased at 3.7 percent. In the eighty-first wave, CPI prices changed at 0.0 percent annual equivalent in May 2024 while core prices increased at 2.4 percent. In the eighty-second wave, CPI prices decreased at 1.2 percent annual equivalent in Jun 2024 while core prices increased at 1.2 percent. In the eighty-third wave, CPI prices increased at 2.4 percent annual equivalent in Jul 2024 while core prices increased at 2.4 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. There are recent increases in shifting sources of energy.
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 | |
| Jul 2024 | 0.2 | 2.9 | 0.2 | 3.2 |
| AE Jul 2024 | 2.4 | 2.4 | ||
| Jun | -0.1 | 3.0 | 0.1 | 3.3 |
| AE Jun 2024 | -1.2 | 1.2 | ||
| May | 0.0 | 3.3 | 0.2 | 3.4 |
| AE May 2024 | 0.0 | 2.4 | ||
| Apr | 0.3 | 3.4 | 0.3 | 3.6 |
| AE Apr 2024 | 3.7 | 3.7 | ||
| Mar | 0.4 | 3.5 | 0.4 | 3.8 |
| Feb | 0.4 | 3.2 | 0.4 | 3.8 |
| Jan | 0.3 | 3.1 | 0.4 | 3.9 |
| AE Jan-Mar 2024 | 4.5 | 4.9 | ||
| Dec 2023 | 0.2 | 3.4 | 0.3 | 3.9 |
| AE Dec 2023 | 2.4 | 3.7 | ||
| Nov | 0.2 | 3.1 | 0.3 | 4.0 |
| Oct | 0.1 | 3.2 | 0.2 | 4.0 |
| AE Oct-Nov | 1.8 | 3.0 | ||
| Sep | 0.4 | 3.7 | 0.3 | 4.1 |
| AE Sep | 4.9 | 3.7 | ||
| Aug | 0.5 | 3.7 | 0.2 | 4.3 |
| AE Aug | 6.2 | 2.4 | ||
| Jul | 0.2 | 3.2 | 0.2 | 4.7 |
| Jun | 0.2 | 3.0 | 0.2 | 4.8 |
| AE Jun-Jul | 2.4 | 2.4 | ||
| May | 0.1 | 4.0 | 0.4 | 5.3 |
| AE May | 1.2 | 4.9 | ||
| Apr | 0.4 | 4.9 | 0.5 | 5.5 |
| AE Apr | 4.9 | 6.2 | ||
| Mar | 0.1 | 5.0 | 0.3 | 5.6 |
| AE Mar | 1.2 | 3.7 | ||
| Feb | 0.4 | 6.0 | 0.5 | 5.5 |
| Jan | 0.5 | 6.4 | 0.4 | 5.6 |
| AE Jan-Feb | 5.5 | 5.5 | ||
| Dec 2022 | 0.1 | 6.5 | 0.4 | 5.7 |
| AE Dec | 1.2 | 4.9 | ||
| Nov | 0.3 | 7.1 | 0.3 | 6.0 |
| AE Nov | 3.7 | 3.7 | ||
| Oct | 0.5 | 7.7 | 0.4 | 6.3 |
| Sep | 0.4 | 8.2 | 0.6 | 6.6 |
| AE Sep-Oct | 5.5 | 6.2 | ||
| Aug | 0.1 | 8.3 | 0.5 | 6.3 |
| AE Aug | 1.2 | 6.2 | ||
| Jul | 0.0 | 8.5 | 0.4 | 5.9 |
| AE Jul | 0.0 | 4.9 | ||
| Jun | 1.2 | 9.1 | 0.7 | 5.9 |
| May | 0.9 | 8.6 | 0.5 | 6.0 |
| AE May-Jun | 13.4 | 7.4 | ||
| Apr | 0.4 | 8.3 | 0.5 | 6.2 |
| AE Apr | 4.9 | 6.2 | ||
| Mar | 1.1 | 8.5 | 0.3 | 6.5 |
| AE Mar | 14.0 | 3.7 | ||
| Feb | 0.8 | 7.9 | 0.5 | 6.4 |
| Jan | 0.6 | 7.5 | 0.6 | 6.0 |
| Dec 2021 | 0.7 | 7.0 | 0.6 | 5.5 |
| AE Dec-Feb | 8.7 | 7.0 | ||
| Nov | 0.9 | 6.8 | 0.6 | 4.9 |
| Oct | 0.9 | 6.2 | 0.7 | 4.6 |
| AE Oct-Nov | 11.4 | 8.1 | ||
| Sep | 0.4 | 5.4 | 0.3 | 4.0 |
| Aug | 0.3 | 5.3 | 0.1 | 4.0 |
| Jul | 0.5 | 5.4 | 0.4 | 4.3 |
| AE Jul-Sep | 4.9 | 3.2 | ||
| Jun | 0.8 | 5.4 | 0.8 | 4.5 |
| May | 0.6 | 5.0 | 0.7 | 3.8 |
| Apr | 0.7 | 4.2 | 0.8 | 3.0 |
| AE Apr-Jun | 8.7 | 9.6 | ||
| Mar | 0.5 | 2.6 | 0.2 | 1.6 |
| Feb | 0.4 | 1.7 | 0.1 | 1.3 |
| AE ∆% Feb-Mar | 5.5 | 1.8 | ||
| Jan | 0.2 | 1.4 | 0.0 | 1.4 |
| Dec 2020 | 0.4 | 1.4 | 0.1 | 1.6 |
| Nov | 0.2 | 1.2 | 0.3 | 1.6 |
| AE ∆% Nov-Jan | 3.2 | 1.6 | ||
| Oct | 0.1 | 1.2 | 0.1 | 1.6 |
| AE ∆% Oct | 1.2 | 1.2 | ||
| Sep | 0.2 | 1.4 | 0.2 | 1.7 |
| Aug | 0.4 | 1.3 | 0.4 | 1.7 |
| AE ∆% Aug-Sep | 3.7 | 3.7 | ||
| Jul | 0.5 | 1.0 | 0.6 | 1.6 |
| Jun | 0.5 | 0.6 | 0.1 | 1.2 |
| AE ∆% Jun-Jul | 6.2 | 4.3 | ||
| May | -0.1 | 0.1 | -0.1 | 1.2 |
| Apr | -0.8 | 0.3 | -0.5 | 1.4 |
| Mar | -0.4 | 1.5 | -0.1 | 2.1 |
| AE ∆% Mar-May | -5.1 | -2.8 | ||
| Feb | 0.1 | 2.3 | 0.3 | 2.4 |
| Jan | 0.1 | 2.5 | 0.3 | 2.3 |
| AE ∆% Jan-Feb | 1.2 | 3.7 | ||
| Dec 2019 | 0.3 | 2.3 | 0.2 | 2.3 |
| Nov | 0.3 | 2.1 | 0.2 | 2.3 |
| Oct | 0.3 | 1.8 | 0.2 | 2.3 |
| AE ∆% Oct-Dec | 3.7 | 2.4 | ||
| Sep | 0.2 | 1.7 | 0.2 | 2.4 |
| Aug | 0.1 | 1.7 | 0.2 | 2.4 |
| AE ∆% Aug-Sep | 1.8 | 2.4 | ||
| Jul | 0.2 | 1.8 | 0.2 | 2.2 |
| AE ∆% Jul | 2.4 | 2.4 | ||
| Jun | 0.0 | 1.6 | 0.2 | 2.1 |
| May | 0.0 | 1.8 | 0.1 | 2.0 |
| AE ∆% May-Jun | 0.0 | 1.8 | ||
| Apr | 0.4 | 2.0 | 0.2 | 2.1 |
| Mar | 0.4 | 1.9 | 0.1 | 2.0 |
| Feb | 0.3 | 1.5 | 0.2 | 2.1 |
| AE ∆% Feb-Apr | 4.5 | 2.0 | ||
| Jan | -0.1 | 1.6 | 0.3 | 2.2 |
| Dec 2018 | 0.1 | 1.9 | 0.2 | 2.2 |
| Nov | -0.1 | 2.2 | 0.2 | 2.2 |
| AE ∆% Nov-Jan | -0.4 | 2.8 | ||
| Oct | 0.2 | 2.5 | 0.2 | 2.1 |
| AE ∆% Oct | 2.4 | 2.4 | ||
| Sep | 0.2 | 2.3 | 0.2 | 2.2 |
| Aug | 0.2 | 2.7 | 0.1 | 2.2 |
| Jul | 0.1 | 2.9 | 0.1 | 2.4 |
| Jun | 0.1 | 2.9 | 0.1 | 2.3 |
| AE ∆% Jun-Sep | 1.8 | 1.5 | ||
| May | 0.2 | 2.8 | 0.2 | 2.2 |
| Apr | 0.3 | 2.5 | 0.1 | 2.1 |
| AE ∆% Apr-May | 3.0 | 1.8 | ||
| 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 | 0.0 | 1.7 | 0.1 | 1.7 |
| AE ∆% Jul | 0.0 | 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 | 0.0 | 2.4 | 0.0 | 2.0 |
| AE ∆% Mar | 0.0 | 0.0 | ||
| Feb | 0.2 | 2.7 | 0.2 | 2.2 |
| AE ∆% Feb | 2.4 | 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 | 0.1 | 2.1 |
| AE ∆% Nov-Dec | 2.4 | 1.8 | ||
| Oct | 0.2 | 1.6 | 0.1 | 2.1 |
| Sep | 0.3 | 1.5 | 0.2 | 2.2 |
| AE ∆% Sep-Oct | 3.0 | 1.8 | ||
| Aug | 0.2 | 1.1 | 0.2 | 2.3 |
| AE ∆ Aug | 2.4 | 2.4 | ||
| Jul | -0.1 | 0.8 | 0.1 | 2.2 |
| AE ∆% Jul | -1.2 | 1.2 | ||
| Jun | 0.3 | 1.0 | 0.2 | 2.2 |
| May | 0.2 | 1.0 | 0.2 | 2.2 |
| AE ∆% May-Jun | 3.0 | 2.4 | ||
| Apr | 0.4 | 1.1 | 0.3 | 2.1 |
| Mar | 0.3 | 0.9 | 0.2 | 2.2 |
| AE ∆% Mar-Apr | 4.3 | 3.0 | ||
| 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 2024 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). There is sharp increase in 2021 and into 2022-2024.
Chart I-20, US, Consumer Price Index, NSA, 2001-2024
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 2024. 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. There are sharp increases in 2021-2024.
Chart I-21, US, Consumer Price Index, 12-Month Percentage Change, NSA, 2001-2024
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, 2001-2024
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Chart I-23 provides 12-month percentage changes of the consumer price index excluding food and energy. There is sharp increase in inflation rates after 2021, which has not fully moderated.
Chart I-23, US, Consumer Price Index Excluding Food and Energy, 12-Month Percentage Change, NSA, 2001-2024
Source: US Bureau of Labor Statistics
https://www.bls.gov/cpi/data.htm
The Consumer Price index of the United States in Chart CPI-H increased 2.9 percent in Jul 2024 Relative to a Year Earlier, The Tenth Highest Since 8.9 percent in Dec 1981 was Followed by the Highest of 9.1 percent in Jun 2022, the Second Highest of 8.6 percent in May 2022, 8.5 percent in both Jul 2022 and Mar 2022, 8.3 percent in both Apr and Aug 2022, 8.2 percent in Sep 2022, 7.7 percent in Oct 2022, 7.1 percent in Nov 2022, 6.5 percent in Dec 2022, 6.4 percent in Jan 2023, 6.0 percent in Feb 2023, 5.0 percent in Mar 2023, 4.9 percent in Apr 2023, 4.0 percent in May 2023, 3.0 percent in Jun 2023, 3.2 percent in Jul 2023, 3.7 percent in Aug 2023, 3.7 percent in Sep 2023, 3.2 percent in Oct 2023, 3.1 percent in Nov 2023, 3.4 percent in Dec 2023, 3.1 percent in Jan 2024, 3.2 percent in Feb 2024, 3.5 percent in Mar 2024, 3.4 percent in Apr 2024, 3.3 percent in May 2024, 3.0 in Jun 2024 and 2.9 percent in Jul 2024.
Chart CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-2024
Source: US Bureau of Labor Statistics https://www.bls.gov/cpi/data.htm
Table CPI-H, US, Consumer Price Index, 12-Month Percentage Change, NSA, 1981-1983, 2019-2024
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| 1981 | 11.8 | 11.4 | 10.5 | 10.0 | 9.8 | 9.6 | 10.8 | 10.8 | 11.0 | 10.1 | 9.6 | 8.9 |
| 1982 | 8.4 | 7.6 | 6.8 | 6.5 | 6.7 | 7.1 | 6.4 | 5.9 | 5.0 | 5.1 | 4.6 | 3.8 |
| 1983 | 3.7 | 3.5 | 3.6 | 3.9 | 3.5 | 2.6 | 2.5 | 2.6 | 2.9 | 2.9 | 3.3 | 3.8 |
| 2019 | 1.6 | 1.5 | 1.9 | 2.0 | 1.8 | 1.6 | 1.8 | 1.7 | 1.7 | 1.8 | 2.1 | 2.3 |
| 2020 | 2.5 | 2.3 | 1.5 | 0.3 | 0.1 | 0.6 | 1.0 | 1.3 | 1.4 | 1.2 | 1.2 | 1.4 |
| 2021 | 1.4 | 1.7 | 2.6 | 4.2 | 5.0 | 5.4 | 5.4 | 5.3 | 5.4 | 6.2 | 6.8 | 7.0 |
| 2022 | 7.5 | 7.9 | 8.5 | 8.3 | 8.6 | 9.1 | 8.5 | 8.3 | 8.2 | 7.7 | 7.1 | 6.5 |
| 2023 | 6.4 | 6.0 | 5.0 | 4.9 | 4.0 | 3.0 | 3.2 | 3.7 | 3.7 | 3.2 | 3.1 | 3.4 |
| 2024 | 3.1 | 3.2 | 3.5 | 3.4 | 3.3 | 3.0 | 2.9 |
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, 2021, 2022, 2023, 2024.
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