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The PCE index, an inflation measure closely watched by the Fed, slowed to 5.5% in November

Another encouraging data point. Hopefully, there will be smaller rate hike in Jan 2023.
Friday’s report from the Commerce Department showed that prices rose 5.5% in November from a year earlier, down from a revised 6.1% increase in October and the smallest gain since October 2021. Excluding volatile food and energy prices, so-called core inflation was up 4.7% over the previous year. That was also the smallest increase since October 2021.

On a month-to-month basis, prices rose 0.1% from October to November after rising 0.4% the previous month. Core prices rose 0.2%.



  • nice to see. I wish I could say the slowing inflation is making any sort of a difference where I live. Iceberg lettuce still not obtainable, on my latest trip to the supermarket. Prescription refill through Canada (but shipped from England) used to be 90 pills. Now it's 84. That's just a sneaky price increase, too. Gas is back up, after dipping below $5 last week. Genoa salami $14/pound.

    The price of "Paradise." 82 high, 76 low overnight today and tonight. Sunny. A nice problem to have on Boxing Day.
  • June 2022 was the turning point for inflation indexes (CPI, PCE, etc). Their levels are still high and who knows when the Fed will be satisfied? It keeps harping on +2% average inflation but that may be a mirage.
  • edited December 2022
    NYT is behind a paywall. Would you please post a short summary? I have been following Paul Krugman articles when I get access to some of them.

    @yogibb, I total agree that the Fed’s 2% inflation target is bogus since the situation is different today as if the genie is out the bottle. We may reach some elevated level at 4 % or so. By that time the economy may sustain damages from the recession.
  • edited December 2022
    While inflation may have peaked, it can take quite some time to reach the Fed's 2% target rate.
    The inflation that remains (services sector, wage growth is large contributor) tends to be "sticky."
    The Fed may alter its 2% inflation target if unemployment increases sharply next year.
  • The persistent high service cost is due the large number of workers who quit or retired during the pandemic. Restaurants are having hard time find enough workers even as they increase their wages. This appears to be a global phenomenon not just in US.

    The Fed needs to revise their target goal.

  • edited December 2022

    The Intelligencer article was very good.
    I appreciate that it detailed opposing viewpoints regarding the economic outlook.
    The author's conclusion is sensible:
    "Next year, the U.S. economy will almost certainly slow down. Maybe by a lot. Hopefully by a little.
    Beyond that, it’s probably best to do as Goldman, BlackRock, and Vanguard all advise — hedge your bets."
  • But, if you happen to have a large yard, don't bet your hedges. (Sorry- couldn't resist.)
  • I like Levitz but am not persuaded

    did not follow crash's anecdata at all

    here is PK today:

    The average national price of regular gasoline this Christmas was almost 20 cents a gallon lower than it was a year earlier. Prices at the pump are still higher than they were during the pandemic slump, when economic shutdowns depressed world oil prices, but the affordability of fuel — as measured by the ratio of the average wage to gas prices — is most of the way back to pre-Covid levels.
    Now, gas prices aren’t a good measure either of economic health or of successful economic policy — although if you listened to Republican ads during the midterms, you might have thought otherwise. But subsiding prices at the pump are only one of many indicators that the inflationary storm of 2021 to ’22 is letting up. Remember the supply-chain crisis, with shipping rates soaring to many times their normal level? It’s over.
    More broadly, recent reports on the inflation measures the Federal Reserve traditionally uses to guide its interest rate policy have been really, really good.
    So is this going to be the winter of our diminishing discontent?
    After the nasty shocks of the past two years, nobody wants to get too excited by positive news. Having greatly underestimated past inflation risks myself, I’m working hard on curbing my enthusiasm, and the Fed, which is worried about its credibility, is even more inclined to look for clouds in the silver lining. And those clouds are there, as I’ll explain in a minute. It’s much too soon to declare all clear on the inflation front.
    But there has been a big role reversal in the inflation debate. Last year optimists like me were trying to explain away the bad news. Now pessimists are trying to explain away the good news.
    What’s really striking about the improvement in inflation numbers is that so far, at least, it hasn’t followed the pessimists’ script. Disinflation, many commentators insisted, would require a sustained period of high unemployment — say, at least a 5 percent unemployment rate for five years. And to be fair, this prediction could still be vindicated if recent progress against inflation turns out to be a false dawn. However, inflation has declined rapidly, even with unemployment still near record lows.
    What explains falling inflation? It now looks as if much, although not all, of the big inflation surge reflected one-time events associated with the pandemic and its aftermath — which was what Team Transitory (including me) claimed all along, except that transitory effects were both bigger and longer lasting than any of us imagined.
    First came those supply chain issues. As consumers, fearing risks of infection, avoided in-person services — such as dining out — and purchased physical goods instead, the world faced a sudden shortage of shipping containers, port capacity and more. Prices of many goods soared as the logistics of globalization proved less robust and flexible than we realized.
    Then came a surge in demand for housing, probably caused largely by the pandemic-driven rise in remote work. The result was a spike in rental rates. Since official statistics use market rents to estimate the overall cost of shelter and shelter, in turn, is a large part of measured inflation, this sent inflation higher even as supply-chain problems eased.
    But new data from the Cleveland Fed confirms what private firms have been telling us for several months: Rapid rent increases for new tenants have stopped, and rents may well be falling. Because most renters are on one-year leases, official measures of housing costs — and overall inflation numbers that fail to account for the lag — don’t yet reflect this slowdown. But housing has gone from a major driver of inflation to a stabilizing force.
    So why shouldn’t we be celebrating? You can pick over the entrails of the inflation numbers looking for bad omens, but I’m ever less convinced that anybody, myself included, understands inflation well enough to do this in a useful way. Basically, as you exclude more and more items from your measure in search of “underlying” inflation, what you’re left with becomes increasingly strange and unreliable.
    Instead, my concern (and, I believe, the Fed’s) comes down to the fact that the job market still looks very hot, with wages rising too fast to be consistent with acceptably low inflation.
    What I would point out, however, is that many workers’ salaries are like apartment rents, in the sense that they get reset only once a year, so official numbers on wages will lag a cooling market, and there is some evidence that labor markets are, in fact, cooling. Official reports in January — especially on job openings early in the month and on employment costs at the end — may (or may not) give us more clarity on whether this cooling is real or sufficient.
    Oh, and with visible inflation slowing, the risks of a wage-price spiral, which I never thought were very large, are receding even further.
    So we’ve had some seriously encouraging inflation news. There are still reasons to worry, and the news isn’t solid enough to justify breaking out the Champagne. But given the season, I am going to indulge at least in a glass or two of eggnog.

  • edited December 2022
    Thank you @davidmoran. Paul Krugman added more details on factors contributing to high inflation. Challenge is that equity is one of the few asset class that is a good hedge against inflation in the long term. At the moment, YTD of S&P index is down -18% as of 12/23/22.
  • edited December 2022
    Checked any airfares lately? Today I applied a $425 “e-credit” from a flight cancelled by Delta in November. I used it to purchase essentially the same flight on Delta in March. The new ticket cost over $700. Shopped among the 3 carriers that service same route and fares were very similar. Not complaining or critiquing PK. Just stating my observation re airfares.

    Admittedly, anecdotal examples like this don’t count for much. Could be some seasonality involved I suppose. But still, feeling a bit rocked by the 75% increase over what was paid a few months ago.
  • I'm not certain that airlines tariffs are primarily responsive to core inflation. The airlines all use sophisticated pricing algorithms which calculate, among other factors, what type of aircraft are available for any given flight, crew availability, number of customers desiring to take that specific flight, what the current "climate" is with respect to general passenger demand, what the competition is charging, and of course the basic expenses of fuel and flight crews.

    Seems to me that airlines may well be a cause of inflation, but not necessarily a direct reaction to it.
  • edited December 2022
    @Old_Joe -

    Yup - It’s complicated. My reported comparison was just a rough sample. Results may vary. Knowing how short in supply labor is I have to believe that’s a big factor for airlines / airports because of the intensive use of manual labor for baggage handling, fueling, maintenance, security, etc. Heck, around here if you can walk and chew gum you’ve got a job - labor’s so tight.

    The attached article mentions one factor that escaped me at first. While oil prices have generally fallen in recent months, that may not be the case for aviation fuel. Diesel has rocketed higher. I’d expect the fuel for jets is more closely related to that than to what we buy at the gas pump.

    The article mentions cut-backs in flights. Seems to be the case from some searching I did last night looking for other travel. A distinct shortage of direct flights from what I could see. If it costs the same to go from “Point A” to “Point B” but takes twice as long because of added connections … that in itself is a form of inflation. The product may cost the same, but it is an inferior product.
  • "The product may cost the same, but it is an inferior product." Yup, you said it!
  • @hank: maybe the airlines have to recoup all the generosity (lol) they showed during this bad weather.
  • edited December 2022

    Interesting take on inflation’s effects in today’s WSJ:

    Inflation Takes Biggest Bite From Middle-Income Households

    ”Inflation is often called a tax on the poor, but this time it’s hit middle-income households the hardest. Many low-income households, benefiting from exceptionally low unemployment rates, have found jobs and experienced wage increases that lifted income more than the cost of living, according to studies by the Congressional Budget Office and others. Many were also bolstered by federal payments during the pandemic. At the high end, many households have seen big losses in stock and bond markets, but their income and savings were large enough that they were able to keep spending aggressively. The middle has been in a vise. Purchasing power from paychecks fell 2.9% for middle-income households in 2022 compared with 2021, while rising 1.5% for the bottom fifth of households and 1.1% for the top, according to the CBO study.”

    Excerpted from The Wall Street Journal December 29, 2022

    Writers: Jon Hilsenrath and Rachel Wolfe
  • Tough year for everyone. How many workers are getting a pay raise to match the PCE or CPI? If not, would it be considered a pay cut?
  • I would love to think that Whipping Inflation Now is a matter of a few months of inconvenient interest rates.
  • Speaking of interest rates, those of us who have been stocking up on bank CDs have certainly noticed a slow but sure deterioration in the rate being offered for 2 and 3 year CDs: 4.95% CD offerings are now down to 4.65%. This started a bit before the last Fed .5% rate increase.

    So here's a question: what do the banks know or think they know that the rest of the market doesn't? The rest of the market took a pretty good slump around the time of that last Fed increase, so the general market seems to be thinking that things are not going to be getting better any time soon.

    How to reconcile this apparent divergence in expectations?

  • Maybe Sgt. Shultz knows : I know nothing, nothing at all !
    Happy New Year, Derf

  • @Old_Joe, I notice the same changes in bank CD yield too, but I don’t know more than you do. Wonder if that is related to mortgage lending and the demand has greatly reduced after rounds of rate hikes.

    Right now there are few 2-3 years non-callable CDs with yields above 4.60% at Fidelity. Have you consider treasury bills? 26 weeks (6 months) and 52 weeks (one year) treasury bills are yielding about 4.75% at auction as of past Tuesday. I was expecting the yield would go up a bit after the 50 bps rate hike, but it didn’t.
  • @Sven- We don't really need income in addition to our pensions and SS, so I'm not necessarily looking for the absolute highest rate. I'm primarily just trying to put in place some inflation protection for our savings, in safe medium-term instruments which require no babysitting. At the moment, 4.6% is still available at Schwab, and that works OK for us.

    I'm very curious though, as I mentioned, about exactly what is driving the return rates lower at this point in time. Something's going on that no one seems to be talking about.
  • edited December 2022
    @Old_Joe - Assuming AAA rated bonds and bond-like securities (including CDs) of the short to intermediate term variety compete to some degree in the marketplace for investor inflows, does the following help explain what has happened to CD rates of late?

    ”The interest rate of I bonds for the past six months was 9.62%, the highest yield this savings bond has offered since its debut in 1998. The new inflation rate for I bonds is 6.89% and will last until May 1, 2023.”


    The I-bond rate is adjusted for inflation. The “official” inflation rate has fallen over the past 6 months, I-Bond rates have fallen a commensurate amount (about 3%). So, other AAA rated paper is likely to have reacted in similar manner in the marketplace. Not to say that a CD is like an I-Bond. Big differences. But they likely compete for inflows among similar types of investors.

    (Not sure what an I-Bond’s duration is. However, I know they can be redeemed (for a small loss of interest) in as little as one year.)

    One side note: I hear the words “risk free” tossed around a lot in regard to AAA / government / or government backed paper. ISTM there is the risk of not having that money readily available should opportunities arise in the equity, real estate, or other markets. In some cases that money is locked-in for a set time frame. In other cases there’s a penalty for early withdrawal. Just food for thought.
  • @hank- Of course there's a requirement to hold these type of assets for a particular time frame. That can be either a benefit or a potential problem, depending on the circumstances. If you know that you are not going to need that money for that time frame, then no problem. If the note is backed by the FDIC, then it's as safe as anything else the government deals with.

    There's no requirement to place all of your savings in notes of this type- just keep some back to play invest in sure winners such as ASML. (On the other hand...)

    As for food for thought, I've had the greater part of a long lifetime to feed and think about this stuff. If I hadn't "thought" reasonably well we wouldn't be needing to stash our savings somewhere that helps offset inflation corrosion.

  • edited December 2022
    @Old_Joe - I know you to be a very deep thinker. The last “blow-off” comment in my post wasn’t directed at you personally - but was merely an afterthought from someone with no expertise in advising others on investing or intent to do so. The first part of my post was directed to you in response to your inquisitive posts re possible reasons short term rates on secure deposits have fallen. Perhaps it’s in response to lower inflation and lower (competitive) rates on I-bonds as I suggested. But perhaps it’s something entirely different that caused those rates to fall. Yours is a great question and I’m hoping someone else can “fill in the blanks” regarding it.
  • Thanks, @hank- I'm hoping that one of our real financial gurus (which I sure as hell ain't) can help on this.
  • edited January 1
    @Old_Joe, thick question:

    >> We don't really need income in addition to our pensions and SS

    If this is the case and seems to be reliably so for you going forward, why not put half or more of whatever remains into SCHD, perhaps dip-buying over time, and call it a day?

    >> exactly what is driving the return rates lower at this point in time. Something's going on that no one seems to be talking about.

    Has not PKrug posted in inflation threads about baked-in or priced-in expectations by the notionally savvy? (I have not kept up, cash-relying going forward on CCOR, instead of STIP and other bondy things.) I may well be uninformed about his thinking here.
  • edited January 1
    I've seen a few articles float the notion, including by PK IIRC, that there's a perception that passing peak inflation tilts (current? near-future?) risk toward recession rather than inflation. (Short rates usually start falling as perceptions of a near-term recession rise, 'cause investors buy up safer fare in short maturities for presumed cap gains ahead.)

    Since inflation fell off a cliff in midsummer and shows no signs of waking up to crazy levels again after five months of lowflation reports, those ideas do seem plausible, to me anyhow.
  • PK twitter thread today (historical-facing):

    ... one way to think about inflation is that it's like a sports event where everyone stands up to get a better view of the action — which is collectively self-defeating.
    Controlling inflation by inducing a recession is like stopping the action on the field until everyone sits down again. It works, but at a cost.
    Much better if we could get collective agreement by everyone to sit down without stopping the game. That's hard to achieve but not always impossible.
    The more or less painless 1985 Bruno disinflation in Israel was pretty much exactly that: all the major parties agreed to stop trying to leapfrog each other, and inflation came down right away.

    Some commenters point out problems with some sectors' having greater ability to stand up than others, and then there are always tall people in front, or at least the advantage of being taller than the person behind you ....
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