New York Fed Calculates Inflation Is Running Hottest Since 2007

As if inflation wasn't "mysterious" enough to the Fed already, today the New York Fed joined the Atlanta Fed first in releasing its own measure to track underlying inflation called, simply, the Underlying Inflation Gauge. What is notable is that this latest inflation tracker shows prices behaving quite differently from traditional indexes this year.

According to the UIG's August measure, broad inflation came in at a red hot 2.74%, the highest since November 2007, according to historical data from the Fed. That compares with just 1.9% annual inflation according to the Labor Department’s CPI and an even more paltry 1.4% as measured by the preferred PCE gauge of Fed policy makers, which matched the lowest since September 2016.

This is what the latest reading showed:

  • The UIG estimated on the “full data set” increased from a revised 2.64% in July to 2.74% in August.
  • The “prices-only” measure increased from a revised 2.09% in July to 2.17% in August.
  • The August CPI showed a further pick up in inflation from June. In response to the firming of CPI inflation, both UIG measures displayed a rise in trend inflation.
  • he UIG measures currently estimate trend CPI inflation to be in the 2.2% to 2.7% range, with both registering above the actual twelve-month change in the CPI.

Why the gap? According to Bloomberg, the full data UIG incorporates dozens of additional variables outside of prices, including the unemployment rate, stock prices, bond yields and purchasing managers’ indexes. Furthermore, if Dudley is right, and there is structural disinflation going on, then the UIG would be much higher using a ‘traditional’ supply curve. Here, as Citi cynically notes, "structural disinflation is far from permanent, as the Mayor of London’s latest regulatory action illustrated very clearly.  Anti-trust or other regulatory measures can end the new supply paradigm at any time."

Additionally, a lot of the disinflation in the New Economy may have been a function of high G10 unemployment, and urbanization in China: both of which have now ended as drivers of disinflation. 

While the second, “prices-only” version of the UIG is derived from CPI data, that measure still rose a solid 2.2% in August. The New York Fed says the UIG “has shown more accurate forecasts of inflation compared with core inflation measures,” and the two UIG measures indicate that “trend CPI inflation” is currently in a range of 2.2 percent to 2.7 percent.

Meanwhile, the annualized 1 month Atlanta Fed Sticky Price CPI surged to 3.1% in August.

Still, when one central bank now has no less than three different inflation metrics to contend with, and base its decisions on, all of which show vastly different numbers, we can see why Yellen would be "confused", and why as we said two weeks ago, what the Fed should be doing is figuring out why and how it is calculating inflation incorrectly before continuing to blow the world's biggest asset bubble.


strategory Fri, 09/22/2017 - 16:03 Permalink

Annualized 1mo headline CPI is 4.94% in August, core CPI is 3.02%. Not sure how much this is saying, just diff between measurement periods. 1mo periods are too volatile to make heads or tails of.

Last of the Mi… Fri, 09/22/2017 - 16:06 Permalink

Brand new inflation gauge and the economy HOT, I"m telling you it is  HOT HOT HOT! LMFAO! Show me a hot economy with a true 5% prime. We'll see. Box stores crash and burn as you walk by them, malls and autos the same but this economy is just HOT, I"m telling you

atomic balm Fri, 09/22/2017 - 17:45 Permalink

problem is not "bad policies" of the fed.  that implies the fed mafia is simply making honest mistakes.the problem is the very existence of this monopoly. NOT its shitty behavior.inflation is "increase in money supply"- the rate of adulteration. inflation is NOT rising prices.  inflation/adulteration leads to rising prices.suppose money supply goes up 2% whilst prices fall 2%.  what is rate of inflation [adulteration]?  it is 2%. . .

Let it Go Fri, 09/22/2017 - 19:13 Permalink

The Fed can't handle the truth that inflation is far greater than these numbers indicate. Over the decades changes have been made in how we figure inflation so as to lower the published number. The cuts in reported inflation were an effort to reduce the federal deficit without anyone in Congress having to do the politically impossible which was to register a vote that would harm the image of Social Security. The article below delves into how current government statistics understate how much our buying power is really dropping.

Econogeek Fri, 09/22/2017 - 20:09 Permalink

Either the Fed is lost among the trees, or it's trying to baffle us with gushes of numbers, or both.Why are they are so loudly advertising their bewilderment?  To get sympathy? Input?  This sort of thing belongs on Oprah. 

Anonymous (not verified) Fri, 09/22/2017 - 21:05 Permalink

I wonder how many adjustments they had made to the CPI in order to creatively account that figure.

UnKeynes Tue, 09/26/2017 - 11:14 Permalink

From “The Economic Consequences of the Peace” by John Maynard Keynes“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch (devalue/inflate) the currency. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch (devalue/inflate) the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one in a million can diagnose.By a gradual, continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (fairness) of the existing system of distribution of wealth.”  Please note that the operation of this process is totally independent ofthe type of economy, whether “capitalist”, “socialist”, “communist”, or “other”, and 100% dependent on the power that the banksters have over the monetary life of the nation. As Lord Rothschild said, “Give me control of a nation’s money and I care not who makes its laws.” This happened to the USA in 1913, with the creation of the “Federal Reserve”, and later expanded with the creation of the Exchange Stabilization Fund, a totally UNregulated quasi-governmental organization, answerable to NO ONE, which has the ability to LEGALLY manipulate the price of the dollar, precious metals, etc. (i.e., through buying and selling futures contracts (“paper gold” & “paper silver”) in unlimited quantities, using funds created by the Fed).