Maybe Some Good News On Inflation

See Consumer prices rose less than expected in November, up 7.1% from a year ago by Jeff Cox of CNBC. Excerpts: 

"Prices rose less than expected in November, the latest sign that the runaway inflation that has been gripping the economy is beginning to loosen up.

The consumer price index, which measures a wide basket of goods and services, rose just 0.1% from the previous month, and increased 7.1% from a year ago, the Labor Department reported Tuesday. Economists surveyed by Dow Jones had been expecting a 0.3% monthly increase and a 7.3% 12-month rate.

The increase from a year ago, while well above the Federal Reserve’s 2% target for a healthy inflation level, was tied for the lowest since November 2021.

Excluding volatile food and energy prices, so-called core CPI rose 0.2% on the month and 6% on an annual basis, compared with respective estimates of 0.3% and 6.1%."

The CPI was 297.711 in November while it was 298.012 in October. See Consumer Price Index Data from 1913 to 2022. The 297.711 means that something that cost about $100 in 1983 would cost about $297.71 today.

But if the news said that prices rose while the CPI went down, what actually happened? The Bureau of Labor Statistics makes seasonal adjustments and that is why prices were reported to have gone up. See Consumer Price Index Summary. Here is what it says:

"Use of Seasonally Adjusted and Unadjusted 

 

Data The Consumer Price Index (CPI) produces both unadjusted and seasonally adjusted data. Seasonally adjusted data are computed using seasonal factors derived by the X-13ARIMA-SEATS seasonal adjustment method. These factors are updated each February, and the new factors are used to revise the previous 5 years of seasonally adjusted data. The factors are available at www.bls.gov/cpi/tables/seasonal-adjustment/seasonal-factors-2022.xlsx. For more information on data revision scheduling, please see the Factsheet on Seasonal Adjustment at www.bls.gov/cpi/seasonal-adjustment/questions-and-answers.htm and the Timeline of Seasonal Adjustment Methodological Changes at www.bls.gov/cpi/seasonal-adjustment/timeline-seasonal-adjustment-methodology-changes.htm. 

 

For analyzing short-term price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year-such as price movements resulting from weather events, production cycles, model changeovers, holidays, and sales. This allows data users to focus on changes that are not typical for the time of year. The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data are also used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation. BLS advises against the use of seasonally adjusted data in escalation agreements because seasonally adjusted series are revised annually."

The CPI in was 292.296 in May. So it was up 1.85% in the last six months since 297.711/292.296 = 1.0185. If it went up that much again for the next six months then we would have an annual inflation rate of 3.73%. That is still above the target of 2% but much better than what it was in 2021 which was 7%. This is not seasonally adjusted.