U.S. Economy

November Inflation Data: What Inflation?

The Consumer Price Index (CPI) data on Inflation was released to very little fanfare. The official value was 2.2%. This is what the Federal Reserve wants to see. What was ignored was that this rate of inflation is lower than what was reported last year when it was 2.32%. The common theme during the past few years is that we have had service inflation, shelter inflation, health insurance inflation, and commodity deflation. The problem is that the data is seasonally adjusted through the weightings used to allocate the basket of goods. Modest inflation is better than deflation.  We had for ten consecutive months during 2015, and another extended period of deflation during 2009. What was recorded and what was reported in the November 2018 CPI report?

We saw Inflation in the Service Data.  We saw 2.3% inflation for Recreation Services, 2.4% for Medical Services, 3.3% for Transportation Services, 3.5% for Hospital Related Services, 3.9% for Health Insurance, 4.4% for Water, Sewer, and Trash Collection services, and 4.7% for Household Operations.

We  saw Shelter Inflation. Shelter inflation is broken down by Rent and Owner equivalent of Rent. Rent increased 3.6% November to November. Owners saw their shelter cost grow by 3.3%. This should be good news for the real estate market. Rising rents may spur renters to buy.

We saw Commodity Deflation. Not all commodity items fell. We saw deflation in Apparel, Recreational Commodities, and Education and Communication Commodities.  We saw modest food inflation of 1.4%. Energy “only” increased by 3.1%.

The weighting of the basket changed the inflation rate from 2.79% to 2.19%. If you spent your money the way that they say you spent it last year, if you spent $4000 a month, then you would have only spent $3978. This year that same basket of goods would have cost $3980. This is okay, because some months we spend more than $4000 out of $4000. This is almost non-existent inflation. The problem is that they jiggered the allocations. If we allocated our spending the same way they we did last year then we would have spent $4091 dollars, out of $4000. That is an inflation rate of 2.79%.

This is okay. There are some fixed costs in our daily lives. We don’t have to change residences every year, so  shelter inflation should not impact us as much as the data indicates. Food is an essential. That has been seeing modest increases, normally lower than the overall rate, for many years. Medical Inflation has been ignored because it is an unintended consequence of the Affordable care Act. I still want to meet someone who only spends  1% of their “monthly nut” on health insurance. It used to be 0.764% during 2015. Someone will say that the increases that we will see the November Retail Report are inflation related. We are experiencing over 5% growth in retail sales this year. Inflation is not 5% in commodities. This is going to be “real” growth.

It’s the Economy.

Inflation numbers “deflated” by seasonal factors – Relative Importance Weighting
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Categories: U.S. Economy

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