• 368 days Will The ECB Continue To Hike Rates?
  • 368 days Forbes: Aramco Remains Largest Company In The Middle East
  • 370 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 770 days Could Crypto Overtake Traditional Investment?
  • 775 days Americans Still Quitting Jobs At Record Pace
  • 777 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 780 days Is The Dollar Too Strong?
  • 780 days Big Tech Disappoints Investors on Earnings Calls
  • 781 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 783 days China Is Quietly Trying To Distance Itself From Russia
  • 783 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 787 days Crypto Investors Won Big In 2021
  • 787 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 788 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 790 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 791 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 794 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 795 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 795 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 797 days Are NFTs About To Take Over Gaming?
Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

  1. Home
  2. Markets
  3. Other

U.S. Inflation: Setup to Upset

Median US CPI

Is U.S. inflation setup to upset the markets? Motivation for considering this question begins with graph to right. Plotted in that chart is the year-to-year percentage change for the median U.S. CPI. That measure is calculated monthly by the diligent elves at Federal Reserve Bank of Cleveland. Period of time for chart is past ten years.

Let us start with some casual observations. First, U.S. inflation as measured by year-to-year percentage change of the median CPI has not been negative anytime in the past decade. Second, only one major cycle of lower inflation occurred during this period. Third, and perhaps most important, the measure has now exceeded the last high which occurred at the end of 2011. As indicated by the red line, this measure of inflation is at the highest level since the beginning of 2009.

What is the median CPI? To calculate the headline CPI for any particular month the rate of change is calculated for each of the components of the CPI such as energy, food, and housing. The headline CPI is then calculated by weighting each of those component. It is what is called a weighted average. The median CPI is that rate of change for which half of the components had a higher rate of change and half had a lower rate of change. The median is less impacted by extreme changes in the prices for any component which can in someways distort the weighted average CPI.

US CPI Headline and Median

As shown in bottom chart, three times the year-to-year percentage change for the headline CPI, black line, has been below that for the median CPI, red line. In each of those cases it spiked lower. Both of the first two times the headline rate for the CPI then moved sharply higher, as highlighted by blue arrows. That divergence below the median CPI by the headline CPI suggests an unstable situation which is corrected by a rise in the headline CPI.

On the right side of the graph the headline CPI has been running below the median CPI for some time and has again spiked lower on the collapse of oil prices. Picture is much like that which occurred in the first two inflation events. This situation suggests that soon the headline CPI could begin rising at a much faster rate, just as it did twice before.

How high might the rate of U.S. inflation as measured by the headline CPI go? In the first inflation event in the graph inflation rose, using rough numbers, from 1.5% to 5.5%, or by 4 percentage points. In the second inflation event, again using rough numbers, the CPI rate of change initially rose from -2% to more that +2%, or again by about 4 percentage points.

Using those simplistic numbers suggests that U.S. inflation as measured by the CPI could rise to an annual rate of about 4% as indicated by the green arrow. Such a development is likely not part of the thinking of either financial market participants or the central bank. Despite the rough nature of this approximation, U.S. inflation also has the potential to move above the previous high which would portray a picture of a rising inflation trend. This situation seems to be a setup that could potentially upset financial markets.

 


Ned W. Schmidt,CFA has had for decades a mission to save investors from the regular financial crises created by economists and politicians. He is publisher of The Value View Gold Report, monthly, with companion Trading Thoughts. To receive these reports, go to: www.valueviewgoldreport.com Follow us @vvgoldreport

 

Back to homepage

Leave a comment

Leave a comment