Jason Furman Profile picture
Dec 10, 2021 13 tweets 4 min read Read on X
CPI up 0.8% in November, 6.8% for the last 12 months. A lot of that was volatile energy which is coming down.

Core up 0.5%, or 4.9% for the last 12 months.

Stripping out some volatile pandemic items from core the underlying still quite high and broadly trending up.
Some items were unusually large in Nov & likely will be fall in the future (eg gasoline +6.1% & used cars at +2.5%).

But some items go the other way (rent/OER was 0.4% & that pace will almost certainly pick up, hospitals were -0.3% and transpo was 0.7% with more room to grow.)
One source of upward price pressure in November appears to have been the easing of the delta variant. The virus likely (but not definitely) reduced inflation in Aug/Sep/Oct. Pandemic services now rising again--but still have a ways to go.
Using different time horizons can be useful. More recent data is both more up-to-date but also has more noise. Here are some horizons for core CPI at an annual rate:

1 month: 6.6%
3 months: 5.6%
6 months: 5.5%
12 months: 5.0%
24 months: 3.3%
As for why rent and owner's equivalent rent will increase, a variety of measures show mostly new leases higher than the average. As more leases come up for renewal will boost the overall. Plus technical measurement issues lead CPI rent/OER to lag.
What does this mean for workers? It hasn't been good so far. Real wage are down about 1% since February 2020 and are 2.9% below trend. (I'm using a slightly unorthodox mixture of the ECI which is composition adjusted and AHE for the additional months which are not.)
Much better for lower-wage workers. The bottom quarter of workers have seen wage gains outpace inflation but by less than before. The second quartile had been positive but has now turned negative.
Inflation is up everywhere. But it is up *much* more in the US. Look compared to Euro area over the last 24 months at an annual rate (a 12 month window would tell mostly the same story but distorted by base effects). The 2pp gap (or 4pp cumulative) has been roughly constant.
This is the US vs. euro area comparison for core CPI, similar story. Note EA < 2% target so most of the inflation there is base effects & volatile food and energy, the US story very different.

(Technical note: previous tweet used comparable HICP measures, this one does not.)
Those are all the charts I have for you this morning. Will put up some more thoughts later but for now will leave you with a positive prediction & a normative view in the final two tweets in this thread.
POSITIVE PREDICTION: Monthly increases in CPI will come down a lot in the next few months. But core CPI will still be avg ~0.4/month for a while (or ~5% annual rate) as some prices moderate (e.g., autos) but others get worse (e.g., rent).
(My positive prediction assumes that omicron does not cause widespread shutdowns in the US economy or reductions in travel and dining. If the reaction to omicron is larger than I expect then inflation would be lower, just like the delta virus likely kept inflation lower.)
NORMATIVE:

Monetary policy: Continue to pivot both because the large decline in unemployment/UI claims means we're closer to max employment & further from inflation goal.

--Fiscal policy needs to stay focused on our medium/long-term problems, don't get distracted by this!

FIN

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More from @jasonfurman

Mar 28
Core PCE inflation came in a little above the already high expectations in Feb. The pattern is the opposite of what you want to see--the shorter the window the higher the annualized rate (and still high at 12 months):

1 month: 4.5%
3 months: 3.6%
6 months: 3.1%
12 months: 2.8% Image
Here are the full set of numbers. They were uniformly ugly in February. Image
If you're looking for some slivers of reassurance, market-based core (which excludes imputed items like portfolio fees) was only up 2.4% over the last 12 months. And "only" 3.0% annualized over the last three, less than the regular core. Image
Read 7 tweets
Mar 18
Income taxes are distort trade by reducing purchases of imports. At least they do so as much as VATs do. Which is to say not any more than they reduce purchases of domestic goods.

A hopefully irrelevant thread.
A simple toy example.

Consider a person in Spain with 100€ in income that they use to buy oranges. Absent taxes oranges cost 1€. They must spend all their income this year.

In this case they could buy 100 total oranges--imported plus Spanish.
Now assume there's a 25% VAT.

VAT raises the cost of imported oranges to 1.25€, this is the way it is supposed to be like a tariff.

Of course, also raises the cost of Spanish oranges to 1.25€. This is not a tariff & is trade neutral.

The person can now buy 80 total oranges.
Read 6 tweets
Mar 3
The Atlanta tracker is predicting GDP growth of -2.8% in Q1.

S&P, which I generally trust a lot, is at 1.6%. Goldman is also at 1.6%.

Atlanta likely wrong. And regardless doesn't say what you think it does.

So continue your deep breathing.
To understand what I think is going wrong with Atlanta you need to understand that imports show up twice in the national accounts--cancelling out.

You might know that GDP = C + I + G + X - M

If you import a Japanese car then M goes up. You might think that lowers GDP but...
The imported car also shows up as a + in GDP, cancelling out the - import.

If it is imported for use by a family, business or government then it shows up in C, I or G respectively.

If a business imports it & no one buys it then it is increased inventory, which shows up in I.
Read 12 tweets
Mar 3
Given the renewed interest in national income accounting a brief primer on the role of government spending in GDP.

Short version: (1) critical to include govt for accounting identities but (2) can debate welfare-relevant metric or best forecasting "signal".

A 🧵. Image
Three identical ways to think about the size of the economy:

1. Final expenditures (including consumers, businesses and government)

2. Incomes (including wages and profits)

3. Production (value added or final production) khanacademy.org/economics-fina…Image
If a consumer, business or govt buys a US-made car that counts in the expenditure portion of GDP as C, I or G.

The wages of the auto worker or the profits of the auto company show up in the income version.

And the auto companies making a car shows up in the production version.
Read 12 tweets
Feb 28
Core PCE inflation in January, annual averages:

12 months: 2.6%
6 months: 2.6%
3 months: 2.4%
1 month: 3.5%

This was as expected, consistent with a very gradual slowing, and ~2.5% underlying inflation. Image
Here are the full set of numbers. Image
On the favorable side of the ledger, market-based core inflation--which is a better predictor of future inflation than regular core--has been somewhat lower. This excludes things like implied price of portfolio management fees. Image
Read 7 tweets
Feb 23
COVID ripped apart economies around the world. Amazingly most rich countries snapped back almost completely very quickly. By the end of 2021, 12 of 27 advanced OECD economies had unemployment rates below pre-COVID forecasts. The US did not. In fact, it was the fourth worst.

A 🧵 Image
This🧵looks at unemp rates cross countries. I'll do another w/ GDP growth across countries which tells a similar story.

But unemp rates preferable because a cleaner answer speed/fullness of RECOVERIES. Growth differences can be more structural (e.g., productivity & demography).
My aim in this and the thread that I'll post later is to be much more systematic than @Noahpinion was in his response to my @ForeignAffairs piece. He had some good arguments there but his international macro comparisons were, at best, unsystematic. noahpinion.blog/p/anti-anti-ne…
Read 15 tweets

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