Some good news on inflation: The CPI fell in December for the second straight month and is up only 0.16% over the last 6 months

Here is the Consumer Price Index for each of the last three months:

Oct. 298.012

Nov. 297.711

Dec. 296.797

 

The 296.797 means that what cost $100 in 1983 would cost $296.797 today. To see all the monthly CPI figures going back over 100 years, see Consumer Price Index Data from 1913 to 2022. 

 

The Dec. CPI is about 0.3% less than the Nov. figure since 296.797/297.711 = .997. The news reports are saying it was only down 0.1%. Why?

The Bureau of Labor Statistics makes seasonal adjustments and that is why prices were reported to have gone down less than the first set of numbers that I show above indicate. 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 296.311 in June. So it was up only 0.16% in the last six months since 296.797/296.311 = 1.0016. If it went up that much again for the next six months then we would have a 12 month inflation rate of about 0.32%. This is not seasonally adjusted.

 

The CPI in Dec. 2022 was 6.5% higher than it was in Dec. 2021. That gives us an official inflation rate for 2022 of 6.5%. It was 7.0% for 2021. From 1983-2020, the average annual compound inflation rate was about 2.62%. The highest single year in that time was 6.1% and it got above 4% only four other years. We saw a long term trend of falling inflation rates, too. See Four Decades Of Disinflation. The average annual inflation rate for the 2010s ended up being 1.76%

 

To see the current inflation report from the BLS, go to Consumer Price Index Summary.