print-icon
print-icon

And Just Like That, Inflation Is About To Disappear?

Tyler Durden's Photo
by Tyler Durden
Friday, Dec 10, 2021 - 07:40 PM

Earlier this year, when inflation was still "transitory" two Fed chairs, Powell and Bernanke, made comments which we joked only make sense if the definition of inflation is changed:

Sadly, our feeble attempts at humor were not unjustified, and as any economic history buff knows the US dramatically changed how it calculates consumer inflation back in the 1980s, an event extensively covered by AllianceBernstein former chief economist Joseph Carson on this website in the past (see "Consumer Price Inflation: Facts vs. Fiction") with the most important difference being that while the CPI of the 1970s included house price inflation, the current measure does not. Instead, home price pressures have been swept in the purposefully nebulous Owner-Equivalent Rent which can be whatever politicians wants it to be (there have been other definitional changes, see here, here, here and here for more). Bottom line, however, is that if today's CPI did include house prices in its measurement, the currently reported inflation numbers for house price inflation would push CPI (and core CPI) to double-digit gains.

Of course, it is politically inconvenient to report true inflation is - just see what happens in any banana republic where society is fed up with runaway inflation. It's also why politicians on both sides of the aisle are always eager to tweak the definition of inflation ever so slightly (or not so slightly) so it appears to be less than it truly is. After all, for them masking reality is a matter of political survival.

In any case, what we though this summer was just a joke appears to be coming true, because as the BLS has reported, starting next month it will adjust the weights for its Consumer Price Index basket, which will be calculated "based on consumer expenditure data from 2019-2020." Alas, there is no further detail on this critical topic, although we will take any bet that post-revision reported inflation will drop because, well, "adjustments."

In the same press release, we also read that "the BLS considered interventions, but decided to maintain normal procedures"... whatever those are. Said otherwise, the BLS may not be "intervening" for now, but when the inflationary rubber hits the road next year with the midterms coming up fast and Dems ratings still in the dumps, we doubt that the BLS will have any qualms to "intervene."

Incidentally, this "update" may explain the conviction behind Biden's statement today: in a statement after the blistering hot CPI report came out...

... Joe Biden said that despite experiencing the most rapid inflation in almost 40 years in November, U.S. price increases are slowing, in particular for gasoline and cars.

“Today’s numbers reflect the pressures that economies around the world are facing as we emerge from a global pandemic -- prices are rising... But developments in the weeks after these data were collected last month show that price and cost increase are slowing, although not as quickly as we’d like,” he said. Biden's chief of staff Ronald Klain chimed in too:

Well, all that prices needs to slow "as quickly as we'd like" at least in government reports such as the CPI, is for the BLS to give them a gentle nudge lower.

0