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Let's Examine the Phrase, "Inflation Eased Slightly in April"

CAMS Weekly View from the Corner - Week ending 5/17/24

May 20, 2024

Last Wednesday the citizenry was informed on the updated price inflation backdrop via the Consumer Price Index (CPI.)  On a personal note, on this release I specifically noted that which I prefer to ignore which was how various outlets covered or spun the data. 


When “spinning” is offered you may mentally default to politics but that would be inaccurate for these types of reports in light of how much weight they carry relative to impacting the general interest rate landscape.  The breadth of spinning - think the amount of unrelated groups having a vested interest in a spin job related to price inflation – can be and is quite large.  Yes, the price of money as a topic brings with it many entities and players.


From D.C. politicians (to include unelected D.C. leadership position inhabitants) to Wall Street entities and players to housing related entities and players to banking industry related entities – the list is too long to chronicle and grows in length when following the wealth of tributaries that sprout from the various industries and entities that benefit from a declining interest rate environment. 


Favorable price inflation data has become the focal point of getting to a declining interest rate environment and if the data cannot provide what is needed (think actual favorable data) then simply attempt to manufacture it via - “The Narrative.”


If you are a consistent reader of these Views you may recognize our well ridiculed phrase “The Narrative” which has offered (for X years now) the economy is fine and will not miss a beat, price inflation is dead and interest rate cuts will be coming numbered in the many.  This generally described narrative has been offered in some form from a wealth of parties and entities that benefit from its existence when actual reality is not providing the lived experience of its descriptive view.


The central non-conforming piece within this narrative is price inflation.  That is, the reality of price inflation.  Regardless of reality we will go with the narrative and headlines attempting to spin toward it if you will with our first chart.  

Above is a decade chart of the Consumer Price Index.  By design we have left it unaltered via arrows and trend lines.  We offer this for you to contemplate for a moment because within it, via X headlines, there is good news spewing from it.  Like a mystery, can you find it?


If you do find it we invite you to place it within the context of the overall chart and then ask yourself – is this really progress?


The Silliness of Month-over-Month Data


The above chart is a decade chart in order to add some perspective.  Admittedly we are attempting to add historical perspective that offers near zero contextual perspective.  Said differently, it is a near-worthless if not outright worthless chart. 


The above is depicting the month-over-month increase in prices via CPI. 


If we tell you CPI went up “.3% this month” or offer it went up “.2% this month” am I informing you of much as a citizen?  As a citizen, do you note or are you even able to note a .3% increase in prices when placing that into a context of your pricing experience thirty days previous? 


At the same time – speaking to the value of narrative driven headlines – “up .3% for the month of April,” that right there doesn’t sound too bad.  Only .3% - you may think – I’ll take it!


The fact is for the month of April as compared to the month of March the CPI did go up .3% which is identified at the far right side in the above chart.  This is down from the previous month read which was up .4%.  There is the stated progress from X outlet. 


At the same time placing that “slightly easing inflation” phrase into the broader context of the above decade long data you realize, if on a personal note I may put words in your mouth, “nah nothing changed here and there is no change in reality.”


You can see this type of data, when charted for an attempt at context most often offers nothing but noise screaming off the page.  But yet, there is progress within it – well, kind of sort of progress which is to offer, no not really any progress at all.


Realistic Context Offers No Change

The above also depicts a decade of CPI data on a percentage growth rate compared to the previous year, i.e. a year-over-year comparison. 


The standout context is noted by our red horizontal line that spans the chart.  Note how the high growth marks of the previous decade – those points in time where CPI got “out of hand” for a relative moment in the timeline continues to be markers that are under our best results in recent years.


In addition and more specific to our current time, note our red circle as it highlights nothing has changed.  We remain notably north of 3% yr/yr growth in price inflation (far above the Fed’s 2% target) and simultaneously remain above the lowest point achieved within the circle which dates back to June of 2023.


Back in June of 2023 it was assured, via narratives and X policymaker’s views that price inflation was a non-issue – the trend was offering there is nothing to do but watch this issue fall into its rightful historical place – think 2% objective.


A Different View of Price Inflation than what is traditionally shared 

The above is also a decade chart of CPI but rather than viewing it or discussing it as a percentage change in X timeframe it reflects the growth of the index itself.   


Even our previous chart reflecting the year-over-year growth rate, when visually presented, can be unintentionally misleading.  When you see our encircled time period of the previous year reflecting a three-plus percent growth rate, visually we see that it is down notably from its peak. 


The misleading aspect of this is visually we see progress and yet forget to fully digest (until we experience it out in society as a consumer) that we are talking about a growth rate, i.e. prices are still growing notably even though the growth rate is better and hence can lead to headlines and narratives that state “Inflation continues to ease.”


Viewing the CPI index itself presents a visual view that underlines prices are not letting up in their trend or even pausing along the path.  This is the visual that you most likely can more readily identify with as a consumer.   


To be certain the year-over-year growth rate, through any reasonable time lens, historically offers a positive (growing) number but also it is not unusual to see periods where the index plateaus for X time. 


In our current era, per the actual index highlighted by our red arrows, we are witnessing and experiencing an unrelenting upward march. 


So when you see headlines that offer “inflation eased……” in X month we invite you to think of all of the above to help contextualize the headline.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

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