Featured Content from InflationData.com

How Loose Monetary Policies Cause Recessions

Advocates of Keynesian economics believe the Federal Reserve should pursue policies that will prevent the possible decline of the economy into a liquidity trap. But what is a liquidity trap? Economic activity often is presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings. Recessions, by this thinking, occur because consumers—for whatever … [Read More...]

Food and Shelter Prices Keep Climbing as CPI Growth Hits a Three-Month High

The federal government’s Bureau of Labor Statistics (BLS) released new price inflation data today, and according to the report, price inflation during the month decelerated slightly, coming in at the lowest year-over-year increase in sixteen months. According to the BLS, Consumer Price Index (CPI) inflation rose 6.4 percent year over year in January before seasonal adjustment. That’s down very slightly from December’s year-over-year increase of 6.5 percent, and January is the twenty-third month in a row with inflation above the Fed’s arbitrary 2 percent inflation target. Price inflation has now been above 6.0 percent for sixteen months in a row.

January 2023 Inflation “Disappointing”

Monthly inflation was huge for January at 0.80% which was only slightly below the 0.84% of January 2022.
Although the first quarter of the year typically has the largest monthly inflation.
We were expecting a much lower January rate.

Since monthly inflation was a bit lower than in January 2022…
Annual inflation for the 12 months ending in January 2023 fell from 6.45% to 6.41%.
This was down from a peak of 9.06% in June 2022.

Is The Fed Flashing Signs It’s Done Raising Rates?

The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 4.75 percent, an increase of 25 basis points. With this latest increase, the target has increased by 4.5 percent since February 2022, although this latest increase of 25 basis points is the smallest increase since March of last year.

Indeed, the FOMC has slowed its rate of increase over the past three months. After four 75 basis point increases in 2022, the committee approved a 50-point increase in December, followed by the 25-point increase this week.

Falling Inflation is Good for Stocks

Historically, Stocks tend to soar in years when inflation is falling. But typically, inflation doesn’t fall until the fed-funds rate rises above the current inflation rate… The last data we have as of this writing is from December when inflation was 6.45% and the FED funds rate was 4.1%. That is still a significant gap.

But monthly inflation began a dramatic slowdown last July. Monthly inflation has fallen by 80%

Why the Fed Is Bankrupt and Why That Means More Inflation

In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time:

As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible.

Without looking at inflation-adjusted prices it is difficult to see where gasoline prices actually stand. Back in 1918 gasoline was $0.25 a gallon and by 1932 prices had fallen to 18 cents a gallon! But as we all know over the last 100 years the purchasing power of the dollar has fallen drastically so in order to get the true picture we can’t just say that the lowest price of gas was 18 cents per gallon, we need to adjust the price for inflation. When adjusting for inflation there are two prices… the first is called the “nominal price” and that is the actual price you would have paid for gas at the pump. The key price though is the inflation-adjusted price which calculates what the price would have been if we were spending current dollars on a specific date. In this case, we are basing our calculations on the value of a dollar in January 2020.

Inflation Adjusted Housing Index since 1890

Inflation Adjusted Real Estate Prices- Lets take a look at the idea that housing prices always go up. Of course, each neighborhood is different, so some neighborhoods might be going down while a few miles away housing prices are skyrocketing but by looking at the nationwide average we can get a better picture of the overall trend. The St. Louis Federal Reserve publishes the following chart that shows the S&P/Case Shiller National Home Price Index and by adjusting those prices for inflation we can get a better picture of how real estate prices really act. Is a home a good investment or not?