See Consumer Price Index for All Urban Consumers: All Items in U.S. City Average from FRED (Federal Reserve Economic Data) compiled by the Research Division at the Federal Reserve Bank of St. Louis.
The Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL) was 298.112 in Dec. 2022 and 295.328 in June 2022. Since 298.112/295.328 = 1.0094, the December figure was 0.94% higher than the June figure.
If we had that inflation rate every six months the annual inflation rate would be 1.89%, below the 2% the Fed has as a target (although they use the Personal Consumption Expenditures or PCE index).
What has happened before when we had a similar six month rise? I was interested in what happened in the following six months. For a similar rise, I found all the cases of the six month change between 0.69% and 1.19% since 1947 (as far back as FRED goes). That is plus or minus 0.25 percentage points.
For example, in the first six months of 1950 the the CPIAUCSL was up 1.14%. In the next six months it was up 4.6%. From Feb.-July it was up 2.38% and then from Aug.-Jan. it was up 5.44%.
I looked for how often the change in the CPIAUCSL in following six month period was 1.5% or less. There were 162 six month periods with an inflation rate from 0.69% to 1.19%. In 134 of the following six month periods, the CPIAUCSL went up 1.5% or less (82.7% of the time).
1.5% might seem like a high cutoff to look for since it would be about a 3% rate for a whole year (although some textbooks used to say that was price stability). But 3% would be a welcome change from what we have been seeing.
If I lower the cutoff to 1% over the next six months for the cases between 0.69% and 1.19%, 98 were 1% or less to go along with an annual rate of 2% (again, out of 162 cases). That is just about 60%. So if all we had to go on in predicting the next six months was the last six months, the chance of achieving price stability would be 60%.
The Fed is worried that what happened in the last six months of 2022 might not indicate what is going on very well. Energy prices fell and goods prices did not change much. They are worried that the inflation rate for services was too high and that gives us a better idea of what is happening (services with rent taken out rose at an annual rate of 4.9%. in December).
But M2 was up 19% in 2020 and 16% in 2021. From March 2022 to Nov. 2022, M2 was down about 1.8%. (M2 is a measure of the money supply). That does suggest that inflation will not be too high in the near future.
There are always complicating factors. The war in Ukraine, China's economy recovering, etc. But there is some cause for optimism (See The Fed Now Has a Good Chance at a Soft Economic Landing: Inflation is falling fast. If the monetary hawks aren’t careful, they could fly into a recession by Alan S. Blinder.) Plus there is much over lap in all the periods I looked at.
Also, of the 162 cases when the six month was CPIAUCSL went up between 0.69% and 1.19%, there were only 8 times it went up more than 2% in the next six months and only once over 4% (4.61%). So there appears to be a small chance of really bad inflation in the next six months.
This table shows how often the second six months came in under 1.5% for all the possible cases for the first six months.
|
Case |
Total |
Less than 1.5% (second six months) |
% |
|
< .69% |
194 |
158 |
81.44% |
|
.69% to 1.19% |
162 |
134 |
82.72% |
|
>1.19% |
544 |
167 |
30.70% |
Related posts:
Why inflation might be coming down (Has data on the money supply)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 (Includes discussion of how seasonal adjustments work)
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