November Inflation Mildly Disappoints Stock Market

According to the Bureau of Labor Statistics CPI report released on December 12^th, Annual Inflation was down to 3.1% in November.

(but since we calculate it to two digits, it was actually down to 3.14%.)

Monthly inflation was 0.44% in August, 0.25% in September, -0.04% in October, and -0.20% in November, so it certainly looks like inflation is falling. But inflation is almost always low to negative in the fourth quarter of the year, so it could simply be an illusion.

The stock market was expecting another significant drop like last month, so they were mildly disappointed, but the market was able to eke out a point or two of gains. We had been projecting a flat to slight rise for November but the actual was slightly lower than our extreme low, so we were actually quite happy with how it turned out.

Go here to view our current MIP projection.

November 2023 Inflation Summary:

Annual Inflation fell from 3.24% to 3.14%
CPI Index fell from 307.671 to 307.051 (still above August’s 307.026)
Monthly Inflation for October was -0.04% and for November was -0.20%
Next release January 11^th 2024

	Jan	Feb	Mar	Apr	May	June	July	Aug	Sep	Oct	Nov	Dec
2022	7.48%	7.87%	8.54%	8.26%	8.58%	9.06%	8.52%	8.26%	8.20%	7.75%	7.11%	6.45%
2023	6.41%	6.04%	4.98%	4.93%	4.05%	2.97%	3.18%	3.67%	3.70%	3.24%	3.14%

BLS Commentary:

The BLS Commissioner reported:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in November on a seasonally adjusted basis, after being unchanged in October, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.1 percent before seasonal adjustment.

The index for shelter continued to rise in November, offsetting a decline in the gasoline index. The energy index fell 2.3 percent over the month as a 6.0-percent decline in the gasoline index more than offset increases in other energy component indexes. The food index increased 0.2 percent in November, after rising 0.3 percent in October. The index for food at home increased 0.1 percent over the month and the index for food away from home rose 0.4 percent.

Although monthly inflation rose 0.1% on a seasonally adjusted basis on a non-adjusted basis it fell -0.20%.

As we can see from the chart below, once again declining Energy prices helped to pull down the overall index while services are still rising… keeping inflation high.

Although these “Seasonally Adjusted” numbers are slightly different than those presented by the BLS, the following chart from the Federal Reserve shows the gap between inflation with and without Food and Energy. Comparing the two we can see how much food and energy are contributing toward overall inflation.

If the blue line is above the red line, food and energy, are adding to the overall inflation rate. But if blue is below the red line, they are actually mitigating overall inflation. As the blue line rose toward the red line from June through August, we noted that energy was doing less to keep down overall inflation. This month the red line is still inflating at just under 4%. So, is inflation 3.1% or 4%? When energy is dragging inflation up, the gov’t wants to use the numbers excluding food and energy… but now they are happy to ignore the red line.

Source: St. Louis FED

Overall energy prices have been down over the last year because the government has been flooding the market with cheap oil by depleting our strategic petroleum reserves. But at some point, they are going to have to replace those reserves (perhaps at much higher prices). Note: Reserves would have started at much higher levels had Democrats not refused Trump’s request to increase reserves when oil was cheap.

This chart from the U.S. EIA shows the extent of the recent strategic petroleum reserve drawdown compared to those of Desert Storm, various hurricanes, and other supply disruptions. Unfortunately, the E.I.A. is always a couple of months behind in updating its chart. But with the data we have we can see that the recent draw-down dwarfs all of the others combined. In July 2020, the SPR stood at 656,140,000 barrels.

As of June 2023, the SPR was down to 347,158,000 or roughly -47.1% below July 2020 levels, which were already below 2010 levels. From January to February, levels were unchanged, so we were hoping that they had halted the drawdown, but drawdowns continued through June. By September there was a slight increase to 351,274,000 (the most recent data available). This reduces the drawdown slightly (almost imperceptible on the tail end of the chart).

Inflation-Adjusted Oil Prices

This month we’ve updated our Inflation-Adjusted Oil prices Table and chart. Current Crude Oil prices are very close to the average since 1980.

For more information see: Inflation-Adjusted Oil prices Inflation-Adjusted Crude Oil Prices Table and Inflation-Adjusted Oil prices Chart.

Inflation-Adjusted Mortgage Rates

We’ve also updated our Inflation-adjusted mortgage rates chart.

Read the full article here.

Inflation Chart since 1989

Beginning in 1989, the longer-term trend was downward until 2021.

(Note the declining “previous resistance” line.) But… Early in 2021, inflation started spiking and quickly broke through the channel’s top and then exceeded the pink previous resistance line with barely a hiccup as it passed through. Now inflation has crossed back down into that channel (with April generating another hiccup as it passed through). With falling gasoline prices, November 2023, saw annual inflation decrease slightly from 3.24% in October to 3.14% in November.

FED Actions

Back in April 2020, we published the March FED Assets chart showing that FED assets could easily reach 9 Trillion…

And two years later, that is precisely what happened. FED assets peaked at 8.965 Trillion on April 13^th, 2022.

By December 7^th, FED assets were down to 8.582 Trillion, and on March 1^st, they had bottomed at 8.39 Trillion, for roughly a 2/3 Trillion decrease. (As we can see from the chart below, that is still only a fraction of QE5 alone, which started at around 7 Trillion).

But then a banking crisis broke out in California, and the FED jumped it back up to 8.733 trillion on March 22^nd wiping out roughly 38% of the gains they made. Since then, the FED has been decreasing assets again and assets are down over a Trillion from the peak to 7.737 trillion on December 6th. So, the reduction is about half of QE5 but then there is still QE 1-4 … and the other half of QE5 to go. Our bet is that they will barely make a dent in QE4 before “having” to start inflating again.

See more commentary on FED Actions here, here, and here.

Monthly Inflation Compared to Previous Years:

The monthly inflation rate for November 2023 was -0.20%

In the chart below, we can see how the monthly inflation compares between 2019 (light green), 2020 (light blue), 2021 (pink), 2022 (red), and 2023 (orange). 2022 started out with very high monthly inflation 0.84% (January), 0.91% (February), and 1.34% (March) even for the first quarter of a year when monthly inflation is already at its highest. Typically, monthly inflation is highest from January through May, often in the 0.30% to 0.50% range and low to negative in the fourth quarter of the year.

We can see that November 2022 was -0.10% while November 2023 was -0.20% causing annual inflation to fall from 3.24% to 3.14%

Not Seasonally Adjusted Monthly Inflation Rates

Note: January 2022’s 0.84% was the highest January since 1990. June was the highest June since 1941 (although the first quarter of 1980 had some higher rates). Typically, June is the beginning of lower monthly rates.

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2016	0.17%	0.08%	0.43%	0.47%	0.41%	0.33%	(0.16%)	0.09%	0.24%	0.12%	(0.16%)	0.03%
2017	0.58%	0.31%	0.08%	0.30%	0.09%	0.09%	(0.07%)	0.30%	0.53%	(0.06%)	0.002%	(0.06%)
2018	0.54%	0.45%	0.23%	0.40%	0.42%	0.16%	0.01%	0.06%	0.12%	0.18%	(0.33%)	(0.32%)
2019	0.19%	0.42%	0.56%	0.53%	0.21%	0.02%	0.17%	(0.01%)	0.08%	0.23%	(0.05%)	(0.09%)
2020	0.39%	0.27%	(0.22%)	(0.67%)	0.002%	0.55%	0.51%	0.32%	0.14%	0.04%	(0.06%)	0.09%
2021	0.43%	0.55%	0.71%	0.82%	0.80%	0.93%	0.48%	0.21%	0.27%	0.83%	0.49%	0.31%
2022	0.84%	0.91%	1.34%	0.56%	1.10%	1.37%	(0.01%)	(0.04%)	0.22%	0.41%	(0.10%)	(0.34%)
2023	0.80%	0.56%	0.33%	0.51%	0.25%	0.32%	0.19%	0.44%	0.25%	(0.04%)	(0.20%)

See: Monthly Inflation Rate for more information and a complete table of Unadjusted Monthly Rates.

Misery Index

Current Misery Index: Unemployment 3.7% + Inflation 3.14% = 6.84%

[Read More on the Misery Index…]

NYSE Rate of Change (ROC)

In February 2023, the NYSE- ROC crossed back above its 12-month moving average, generating a BUY Signal…

Prior to last month’s lower inflation-inspired rally, the NYSE ROC was very near a sell signal although the NASDAQ was not. The NYSE has since rebounded upward away from the redline.

For more information, see NYSE Rate of Change (ROC) and NASDAQ ROC Chart.

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