Macroblog

One of the problems I have with the inflation numbers near the upper end of most people’s comfort zone is that small up-ticks in the data take on a greater significance than they might otherwise. Take this morning’s CPI report for January. The "headline" number showed an 8.2 percent (annualized) rise for the month—just about wiping out the cumulative declines we got in November and December. Of course, food and (especially) energy costs accounted for nearly all of the January acceleration in prices. The "core" CPI rose a much more moderate 2.4 percent for the month, about what we saw at the end of last year and just a bit above this measure’s 12-month trend (2.1 percent.) So, if you were thinking last year’s over-sized energy price hikes would come spilling into the retail numbers early this year, you won’t find that in this morning’s report. Well, that’s one way to view the January numbers—your worst fears weren’t realized.

I’ve also looked at the data sliced a number of different ways and they tell a pretty consistent story—they seem to be inching a little higher. If we consider the core CPI at three-month cuts, the 2.4 percent increase in the core CPI over the most recent three month period is up from 2.0 percent over the previous three months and 1.6 percent over the three months prior to that. Likewise, the 6-month numbers show a similar, small uptick, 2.2 percent over the past six months compared with 2.0 percent in the earlier 6-month period. OK, these are slight increases and hardly compelling evidence of a change in the inflation trend, but you can’t like the derivative.

Consider also that the median CPI was up 2.6 percent last month, a tad above the pace it has shown for the past year (2.5 percent), and the 16 percent trimmed mean CPI (which excludes just the most extreme outliers) was up a surprising 4.2 percent (and is 2.6 percent above a year ago). Again, these numbers by themselves don’t argue loudly that the inflation trend is on the move, but they certainly don’t give one a great deal of comfort, either.

So, if you're looking to me for a heads-up on any growing inflation pressure, what would I say about this morning’s CPI report? I’d say that the retail price data seem to be creeping a bit higher, but that the rise is so modest that it can’t be clearly distinguished from the transitory noise that is common in the price statistics. If you respond, "Is this how inflation works? Does it creep into the data so quietly, so nearly imperceptibly that you can’t tell it’s there until it’s taken a spot on your couch?" I’d say, "No, probably not." But then I’d have to add, "Of course, it’s hard to know for sure." You know, I don’t think that answer is going to be the high point of your day.